Discharge-for-value defense

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The discharge-for-value defense defeats a claim for unjustified enrichment under New York law where a recipient, without notice of mistake and not having induced the payment, receives funds that discharge a valid debt:

“When a beneficiary receives money to which it is entitled and has no knowledge that the money was erroneously wired, the beneficiary should not have to wonder whether it may retain the funds; rather, such a beneficiary should be able to consider the transfer of funds as a final and complete transaction, not subject to revocation.” Banque Worms v Bank America (1991) 570 N.E. 2d 189

Note in particular the finding in Citigroup v Brigade Capital Management — which, in our humble opinion, rather mounts the pavements — sidewalks, sorry — and runs down peacable pedestrians perambulating the common law of contract – that it it makes no difference that, at the time of the mistaken payment, the debt in question was not yet due under the contract.

There is no equivalent under the English law of restitution, where an enriched lender has to return the money: Barclays Bank Ltd v WJ Simms. This darkened cranny of the common law was exposed to harsh daylight when Citigroup tripped over it while trying to reclaim half a yard they’d accidentally shelled out to some distressed debt lenders to Revlon in 2020.

I bet Citi wished they were English.

See also

• Restitution
• Citigroup v Brigade Capital Management
• Barclays Bank Ltd v WJ Simms