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CHANGE OF POSITION AS A DEFENSE IN

QUASI-CONTRACTS—THE RELATION OF
IMPLIED WARRANTY AND AGENCY TO
QUASI-CONTRACTS.

THAT

HAT the subject of change of position as a defense to the

action for money had and received is confused, seems at first sight strange. The obligation to repay money paid to one by mistake of a material fact is quasi-contractual, since it exists regardless of consent and yet may be enforced in a contract action, and since it is imposed by law because ex aequo et bono the defendant ought to pay the money. Though the money is recoverable in an action at law, because common law judges saw fit to allow a remedy at law instead of requiring the plaintiff to bring a suit in equity, the right is essentially equitable. On principle, therefore, whenever the defendant can show that in equity and good conscience he ought not to be required to repay, the obligation to repay should be held no longer to exist, even if it did exist prior to the time when the defendant's equitable defense arose. This conclusion is inevitable because the obligation is in no sense contractual, - it is called quasi-contractual to avoid any danger of confusing it with genuine contractual obligations, — but, being implied by law in the interests of justice, it must be 'terminated by law when the interests of justice so require. Were it not, there. fore, for certain applications of the doctrine of implied warranty in the law of sales and in the law of transfers of negotiable paper, and for the existence of a kindred doctrine in the law of agency, so great a change of position on the part of an innocent recipient of money paid by mistake of fact as to make his refusal to repay it as equitable as is the other party's demand for repayment, would probably everywhere be conceded to be a complete defense to the

1 “In one word, the gist of this kind of action is that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money.” Lord Mansfield, in Moses v. Macferlan, 2 Burr. 1005, 1012.

2 “ The action for money had and received ... takes the place of a bill in equity and should be encouraged within proper limits. It should not be extended, however, to cases in which the defendant may be deprived of any right or subjected to any in. convenience thereby.” Allen, J., in Rathbone v. Stocking, 2 Barb. (N. Y.) 135, 145. See Buller, J., in Straton v. Rastall, 2 T. R. 366, 370.

other party's demand for restitution. It is accordingly essential to get at the reason why doctrines of warranty and of agency interfere with the application of general equitable principles, if we are to bring order out of apparent chaos. On that account the following explanation, new in statement though it may be, is offered in the hope that it will make clear why there is conflict on the subject of change of position.

I.

THE RELATION OF IMPLIED WARRANTIES TO QUASI-CONTRACTS.

Is an implied warranty a contract implied in fact or an obligation implied in law? This question is important, because if an implied warranty is a contract implied in fact it rests in theory on the ascertained intention of the parties, whereas if it is an obligation implied in law it rests on the supposed requirements of “ eternal justice"; and because a thing implied on account of the presumed intention of the parties must be held to override, as effectually as an express contract would, any obligation which in the absence of an actual contract the law, in the interests of justice, would imply.

The definitions of implied warranties say that they are created or arise by operation of law, and yet are genuine contracts. But if they are contracts implied in fact, why say that they are created

1 “It seems to me that whenever circumstances arise in the ordinary business of life in which, if two persons were ordinarily honest and careful, the one of them would make a promise to the other, it may properly be inferred that both of them understood that such a promise was given and accepted.” Lord Esher, M. R., in Ex parte Ford, 16 Q. B. D. 305, 307.

2 “A warranty is an express or implied statement of something which the party undertakes shall be part of the contract, yet collateral to the express object of it.” Lord Abinger, in Chanter v. Hopkins, 4 M. & W. 399, 404.

“Implied warranties are created by law or spring from the facts existing at the time of sale ; from what the parties did rather than from what they said. They are contracts, to be sure, but silent contracts.” Bennett's note to Benjamin on Sales, 7 Am. ed., 672.

“ Implied warranties are such as arise by operation of law, and an implied warranty may be defined as a contract or agreement which the law imputes to the seller by reason of the nature, circumstances, or subject-matter of the contract of sale.” 2 Mechem, Sales, § 1295.

We may say, generally, that the law implies a warranty in sales, because of attend. ant circumstances of the transaction and in reliance upon acts rather than words of the parties. A contract is understood, but a contract evinced sufficiently by mutual conduct, with proof of a promise." Schouler, Pers. Prop., 3 ed., § 342.

by law? That is because, in the absence of circumstances negativing the existence of an implied warranty, the court will not let a jury find that there is none. All the jury has to do is to find that a certain situation exists and the court supplies the implication of warranty. An implied warranty, where the proper situation for it exists, is a contract conclusively implied as a fact by the court.2

The line between an implied warranty and a quasi-contract is hard to draw, because an implied warranty, like a quasi-contract, is in theory affirmed only because substantial justice seems to demand it; 3 yet it is never to be forgotten that, unlike a quasi-contract, an implied warranty is founded on the presumed intent of the parties,

1 “Implied warranties are not conclusions or inferences of fact drawn by a jury; but they are the conclusions or inferences of law pronounced by the court upon facts admitted or proved before the jury.” Osgood v. Lewis, 2 Har. & G. (Md.) 495, 519.

“ It must now be taken to be the law . . . that where property is sold by sample there is an implied warranty that the article corresponds with the sample. . . . In the absence of proof to rebut the presumption it is of equal efficacy to charge the vendor as if the seller had expressly said, I warrant them to correspond with the description or representation.'” Borrekins v. Bevan, 3 Rawle (Pa.) 23, 36.

2 “ I think the facts were so clear and undisputed that the court could, without error, have decided as a question of law that there was a warranty.” Earl, C., in Hawkins v. Pemberton, 51 N. Y, 198, 207.

Because an implied warranty is a contract implied in fact, it may be proven under a general averment in a complaint that the defendant warranted an article. Rogers v. Beckrich, 46 N. Y. App. Div. 429; Long v. Armsby Co., 43 Mo. App. 253. See Misner v. Granger, 9 Ill. 69; Hoe v. Sanborn, 21 N. Y. 552 ; Cleveland Linseed Oil Co. v. Buchanan, 120 Fed. Rep. 906.

8 "A warranty should only be implied when good faith requires it.” Parker, J., in McCoy v. Artcher, 3 Barb. (N. Y.) 323, 330.

The rule of caveat emptor has so been modified by express and implied warranties that Mr. Schouler says: “We may well conclude that this rule of caveat emptor doubles upon itself; indeed, between court and jury it has come to be applied flexibly so as usually to satisfy the demands of substantial justice in each individual case." Schouler, Pers. Prop., 3 ed., $ 343.

4 "Now an implied warranty, or, as it is called, a covenant in law as distinguished from an express contract or express warranty, really is in all cases founded on the presumed intention of the parties and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side ; and I be. lieve if one were to take all the cases, and they are many, of implied warranties or covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving the transaction such efficacy as both parties must have intended that at all events it should have.” Bowen, L. J., in The Moorcock, L. R. 14 P. D. 64, 68.

“Here, if we were to imply such a contract as is suggested, we should, as it seems to me, be incurring great danger of implying something that neither party ever intended.” Kay, L. J., in Hamlyn v. Wood, (1891) 2 Q. B. 488, 495.

and hence, though implied in general in the interests of substantial justice, answers to other tests than those of unconditioned equity. The real or imaginary business needs of a situation may lead to the implication of a warranty presumably intended by the parties where the law of quasi-contracts demands a different solution of the difficulty.

An example of the struggle between implied warranty and quasicontract, full of significance for the question of change of position, is found in the controversy over Price v. Neal 2 and kindred cases. That the drawee of a bill of exchange or check cannot recover money paid by him under mistake as to the genuineness of the drawer's signature, or as to the state of his account, yet is allowed to recover where the mistake is as to the alteration of the body of the bill or check,is inexplicable to one who does not see in the result a compromise between the law of quasi-contracts and the law of implied warranty. On the one hand you have the broad equitable doctrine,“ that as between two persons having equal equities, one of whom must suffer, the legal title shall prevail,” 7

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1 A warranty will not be implied where there is an express warranty. See 2 Mechem, Sales, $ 1259, and cases cited. A few late cases are Reynolds v. General Electric Co., 141 Fed. Rep. 551 ; La Crosse Plow Co. v. Helgeson, 106 N. W. Rep. 1094 (Wis.); Gaar Scott & Co. v. Hodges, 90 S. W. Rep. 580 (Ky.). And it will not be implied where there is a refusal to give an express warranty. Hartin Com. Co. v. Pelt, 88 S. W. Rep. 929 (Ark.).

3 Burr. 1354. See the admirable article by Professor Ames on “ The Doctrine of Price v. Neal” in 4 Harv. L. Rev. 297.

4 Harv. L. Rev. 297, and cases cited. See First Nat'l Bank of Belmont v. First Nat'l Bank, 58 Oh. St. 207. But see the curious reactionary decision of First Nat'l Bank v. Bank of Wyndmere, 108 N. W. Rep. 546 (N. D.), noted in 20 HARV. L.

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REV. 145.

5

4 Harv. L. Rev. 305, and cases cited; Riverside Bank v. First Nat'l Bank, 74 Fed. Rep. 276. On this point there are a few contrary decisions. See ibid.

4 Harv. L. Rev. 306, and cases cited. 6 Professor Keener in his excellent treatise on Quasi-Contracts said of these deci. sions (p. 158, n.): “ It is submitted that on no theory of quasi-contracts can the decisions reached in the cases . . . be reconciled or the results reached in many of the cases be justified.”

7 Professor Ames in “The Doctrine of Price v. Neal,” 4 Harv. L. REV. 297–299. See Holley v. Domestic and Foreign Miss. Soc., 180 U. S. 284. Curiously enough, Professor Keener could not see that in Price v. Neal the equities are equal. Keener, Quasi-Contracts, 155, 156. He could see clearly enough that a defendant's innocent change of position subsequent to the plaintiff's mistaken payment should be a complete defense, although that change of position, to use his phrases about Price v. Neal, is a transaction complete in itself and follows in point of time the entirely independent transaction between the plaintiff and the defendant (Keener, QuasiContracts, 59–74); but he did not appreciate that Price v. Neal is really a case of change of position, although the defendant's change of position took place before

which is given due application where a drawer's signature is forged and, by the better opinion, where he had no funds in bank; but on the other hand you have first the broad legal doctrine that by contract express or implied in fact the parties may disregard this equitable doctrine, and then the business instincts of the judges insisting that the parties have disregarded it by a contract implied in fact where payment is made on a raised check. In any event

instead of after the plaintiff's mistaken payment. It is true that, where the change of position takes place after the plaintiff's payment, one is apt to feel that the plaintiff induced the change, - a feeling which necessarily is absent where the change of position takes place before plaintiff pays; yet if that feeling of causation is to affect one's appraisal of the equities and where plaintiff is innocent and careful in making the payment it seems wholly wrong to let it do so - it can only make one say that the de. fendant's equity is superior to the plaintiff's in such a case. It certainly ought not to make one say that in Price v. Neal the equities are not equal; for it is the innocent change of position, as such, of the defendant in whatever order of time it occurs, that gives him an equity equal to that of the innocent change of position, as such, of the plaintiff, found in the latter's mistaken payment. As a matter of fact the courts in the change of position cases do not seem to be influenced by the causation idea where neg. ligence is not a factor, and accordingly we find some courts which follow Price v. Neal allowing a recovery against a defendant whose position has changed since the payment. So the fact that a defendant's knowledge of the forgery, acquired after he gets the forged paper and before the plaintiff pays, will keep his equity from equalling the plain. tiff's equity, is troublesome to Professor Keener (Quasi-Contracts, 156) just because he does not see that the defendant is as much to blame in such a case for the plaintiff's payment as a plaintiff is to blame for a defendant's change of position where the plaintiff pays innocently, but after discovering the mistake is negligent about notifying the defendant, who after such negligence innocently changes his position. Professor Keener's insistence that the loss should be thrown on the plaintiff in the last. mentioned situation (Quasi-Contracts, 72, 73), logically requires him to throw it on the defendant in the first-mentioned case. The situation which the parties occupied at the time the plaintiff made his payment would seem to be entitled to no peculiar importance when the relative equities of the parties are involved, as the cases on change of position show.

1 For instance, all must agree that a holder of a check who should expressly guarantee to the drawee the genuineness of the drawer's signature could not rely on the equitable doctrine as a defense. Cf. Second Nat'l Bank v. Guarantee, etc., Co., 206 Pa. St. 616.

? Even with reference to payment on a forged drawer's signature, we have some writers calling for the implication of a warranty. We have Mr. Daniels in his work on Negotiable Instruments insisting that a warranty should be implied in such a case, and we have Professor Ames insisting that it should not. The victory is with Professor Ames, because both equitable principle and the presumed intention of the parties agree that the drawee should stand the loss. The common understanding of the business world today undoubtedly is that the drawee must know at his peril the drawer's signature, and that the holder impliedly warrants nothing as to that; and consequently equitable principle has in such a case no contract implied in fact to modify or nullify it. Cf. the remarks of Holmes, C. J., in Dedham Nat'l Bank v. Everett Nat'l Bank, 177 Mass. 392, 395.

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