New York Law Review

Tag: Money Had and Received

  • Somers Central School Dist. v. Town of Somers, 77 N.Y.2d 169 (1990): Action for Money Had and Received & Interest

    Somers Central School Dist. v. Town of Somers, 77 N.Y.2d 169 (1990)

    A school district may maintain a cause of action for money had and received to recover unpaid accumulated interest on school tax moneys, even after accepting the principal sum upon which that interest became due.

    Summary

    Nineteen Suffolk County school districts sued towns for failing to disburse collected school tax money on time, as required by the Suffolk County Tax Act. Although the towns eventually paid the principal tax amounts due, the school districts sought to recover the unpaid accumulated interest. The New York Court of Appeals held that the districts could maintain a cause of action for money had and received to recover the unpaid interest, even after accepting the principal. The court reasoned that equitable principles require the towns to compensate the districts for the lost use of their money due to the delayed disbursements.

    Facts

    Plaintiffs, 19 school districts in Suffolk County, were located within the Towns of Huntington, Smithtown, and Islip. The districts challenged the towns’ disbursements of tax monies collected under the Suffolk County Tax Act. The towns disbursed sums equaling the school districts’ tax levies but allegedly violated the timing requirements of sections 13(a) and 14 of the Act. The school districts claimed the towns’ late disbursements caused them to lose interest income.

    Procedural History

    The school districts commenced consolidated actions. The defendants moved to dismiss, arguing the complaints were legally insufficient because the towns had paid the principal amounts. The Supreme Court denied the motions and granted partial summary judgment to the plaintiffs. The Appellate Division reversed, granting the defendants’ motions to dismiss for failure to state a cause of action for money had and received. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether school districts’ right to timely disbursement of collected school tax levies under sections 13(a) and 14 of the Suffolk County Tax Act can be enforced in a cause of action for money had and received when the districts, before legal action, received the principal amounts but not the accumulated interest?

    Holding

    Yes, because the school districts’ right to collect interest is not negated by receiving the principal sums. The towns were obligated to disburse the funds timely, and failure to do so created an immediate liability for both principal and interest.

    Court’s Reasoning

    The Court of Appeals emphasized that a cause of action for money had and received is based on equitable principles, arising when one party possesses money that, in equity and good conscience, belongs to another. Citing Parsa v. State of New York, 64 N.Y.2d 143, 148 (1984), the court noted it applies “in the absence of an agreement when one party possesses money that in equity and good conscience [it] ought not to retain and that belongs to another.” When towns failed to disburse school taxes on time they breached a statutory duty, thus benefiting from the use of funds belonging to the school districts.

    The court distinguished this case from Peirson v. Board of Supervisors, 155 N.Y. 105 (1898), where the town had already received and used the funds in question. Here, the dispute concerned interest on taxes improperly withheld. The court found that under the self-executing provisions of the Suffolk County Tax Act, the towns’ default triggered an immediate liability for both principal and accumulated interest. The court emphasized that plaintiffs should be made whole: “There can be little question that under any consideration of ‘right, justice and morality’…plaintiffs, in order to be made whole, should be permitted to assert a claim to recover any interest that may be due them.”

    The Court analogized this case to Davison v. Klaess, 280 N.Y. 252 (1939), where the Court held that the receipt of partial payments applied to the principal did not relieve the debtor of the obligation to pay interest. The Court concluded that to allow the towns to avoid paying interest simply by paying the principal before a lawsuit would violate the statutory scheme and equitable principles.

  • Federal Insurance Co. v. Groveland State Bank, 37 N.Y.2d 252 (1975): Bank’s Duty Regarding Fraudulent Checks & Depositor Negligence

    Federal Insurance Co. v. Groveland State Bank, 37 N.Y.2d 252 (1975)

    A bank’s liability in an action for money had and received, stemming from the fraudulent issuance of checks by a depositor, can be offset or barred by the negligence of the drawer-drawee bank in failing to detect the fraud through reasonable account monitoring.

    Summary

    A trust officer at Lincoln First Bank embezzled funds by issuing checks payable to Groveland State Bank and depositing them into his personal account at Groveland. Federal Insurance, Lincoln’s insurer, sued Groveland for money had and received, breach of warranty, and bad faith. The court held that while Groveland had a duty to inquire about the checks’ disposition, Lincoln’s own negligence in failing to detect the fraud through internal audits and account reconciliation could bar or reduce recovery. The court emphasized the equitable nature of an action for money had and received, where the plaintiff must demonstrate that it would be unjust for the defendant to retain the funds.

    Facts

    Richard Jaquish, a trust officer at Lincoln First Bank, opened an account at Groveland State Bank, stating he would be depositing funds from a trust. Over three years, Jaquish issued 33 Lincoln First checks payable to Groveland, totaling $333,829.74, and deposited them into his Groveland account. Groveland stamped the checks with a collecting bank endorsement and presented them to Lincoln First for payment, which Lincoln First paid without inquiry. An internal audit at Lincoln First revealed an overdraft, but the fraud wasn’t discovered until a later audit by state and federal examiners. Jaquish disappeared, leaving a minimal balance in his Groveland account.

    Procedural History

    Federal Insurance, as Lincoln First’s subrogee, sued Groveland. Special Term granted Groveland summary judgment on one cause of action but denied it on the others. The Appellate Division modified, granting summary judgment to Federal Insurance on the cause of action for money had and received. Groveland appealed to the New York Court of Appeals, and Federal Insurance cross-appealed. The Appellate Division certified a question to the Court of Appeals.

    Issue(s)

    1. Whether Lincoln First Bank’s negligence in failing to detect its employee’s fraudulent activity bars or reduces recovery from Groveland State Bank in an action for money had and received.
    2. Whether Groveland State Bank breached the warranty of good title under UCC § 4-207(1)(a) by presenting the checks for payment.
    3. Whether Groveland State Bank took the checks in bad faith and with notice of a defense or claim against them.

    Holding

    1. No, the Appellate Division incorrectly granted summary judgment because genuine issues of material fact exist concerning Lincoln First Bank’s negligence. The order of the Appellate Division is reversed in part. A trial is required to determine the extent to which Lincoln’s negligence contributed to the losses, as Lincoln is chargeable with exercising the same degree of care and control of its accounts that an individual depositor would have been expected to exercise because the burden is on the plaintiff to prove that defendant cannot in good conscience retain the moneys. Reasonable and prudent action by Lincoln would have revealed the defalcations and prevented further losses, plaintiff should be precluded from recovery by way of summary judgment.
    2. Yes, the Appellate Division correctly denied summary judgment because the second cause of action should be dismissed. Groveland State Bank did not breach the warranty of good title because the checks did not contain any forged endorsements. The warranty of good title in UCC § 4-207(1)(a) applies primarily to forged endorsements, which were not present here.
    3. Yes, the Appellate Division correctly denied summary judgment because the third cause of action should be dismissed. The contention that Groveland State Bank took the checks in bad faith and with notice of a defense or claim against them is without substance.

    Court’s Reasoning

    The court emphasized the equitable nature of an action for money had and received, stating that the plaintiff must show it is against good conscience for the defendant to keep the money. The court found that Lincoln First, as a bank, should be held to the same standard of care in examining its accounts as any depositor. Lincoln First’s failure to detect the fraud over a prolonged period raised questions of negligence that needed to be resolved at trial. The court reasoned that Lincoln First may be responsible for failing to exercise reasonable care after the processed items were returned to it, and its consequent failure to act reasonably and promptly, contributed directly to the losses incurred (see Arrow Bldrs. Supply Corp. v Royal Nat. Bank of N. Y., 21 NY2d 428, supra; Potts & Co. v Lafayette Nat. Bank, 269 NY 181, supra). The court stated, “It is the most favorable way in which a defendant can be sued. In such an action the defendant ‘may defend himself by everything which shows the plaintiff ex aequo et bono is not entitled to the whole of his demand or any part of it’ ”. Regarding the warranty of good title, the court clarified that it primarily applies to forged endorsements, which were absent in this case. The court found no evidence to support the claim that Groveland acted in bad faith or with notice of a claim against the checks.