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Discharge-for-value defense: Difference between revisions
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{{a|negotiation|}}{{Discharge for value capsule}} | {{a|negotiation|[[File:Unintentional discharge.jpg|450px|thumb|center|FlexCube is a lemon and I want my money back.]]}}{{Discharge for value capsule}} | ||
There is no equivalent under the English law of [[restitution]] | |||
This is based on American Law Institute’s<ref>About which august institution, read more [https://www.ali.org/about-ali/ here].</ref> 1937 ''Restatement (First) of Restitution'', Section 14 of which provides: | |||
{{quote|“A creditor of another or one having a lien on another’s property who has received from a third person any benefit in discharge of the debt or lien, is under no duty to make restitution therefor, although the discharge was given by mistake of the transferor as to his interests or duties, if the transferee made no misrepresentation and did not have notice of the transferor’s mistake.”}} | |||
Note in particular the finding in {{casenote|Citigroup|Brigade Capital Management}} — which, in our humble opinion, rather mounts the pavements — sidewalks, sorry — and runs down peaceable pedestrians perambulating the [[common law]] of [[contract]] – that 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: {{casenote|Barclays Bank Ltd|WJ Simms}}. This darkened cranny of the common law was exposed to harsh daylight when [[Citigroup v Brigade Capital Management|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. | |||
It seems to me — for the little that is worth; I am but a traveller in the modern lands — that this [[Discharge-for-value defense|discharge for value defense]]<ref>Forgive me the American spelling, readers, but it is an American concept, which we should have no part of.</ref> needs to be understood where the payer has a general obligation to pay to the receiver: a trade-creditor relationship; for example. Here, the receiver expects payment soon; perhaps not necessarily ''today'', but within 30 days, and this period is not so much an agreed term of finance but a practical, customary indulgence that merchants allow each other to recognise that account payments go on a cycle, in batches, and it is no enormous deal if one is not paid the instant one delivers a service. | |||
In that case, say a debtor owes a creditor £100, and then pays such a payment, again, sensible practice and custom would be to allow the creditor to treat that amount as satisfying that debt. This is not, really, a defense to an action in restitution so much as the operation of basic principles of [[set-off]]. It would be perverse indeed, and frivolous, for a debtor to try to claw back funds it was going to have to pay in the next week or so anyway. | |||
But the court went further than that. It could find no authority to support the argument that the [[debt]] needed to be immediately ''due'': it just needed to be a bona fide ''debt'': | |||
{{quote|“In sum, the court concludes that the recipient of funds need not show that an outstanding debt was “due” when it received the funds in order to invoke the discharge-for-value defense. Instead, it is sufficient for the party invoking the defense to show that, at the time the funds were received, it was a bonafide creditor. Defendants meet that burden here ...”}} | |||
This, I submit, is on-its-face bonkers. Take the scenario where the [[creditor]] and [[debtor]] have an agreed [[term loan]] payable in, say, 25 years. You know, like a mortgage. Often it will be a condition of the [[mortgage]] that the borrower’s salary is paid into an account at the same bank. If the discharge-for-value defense operates as interpreted in {{casenote|Citigroup|Brigade Capital Management}}, the bank could apply the borrower’s total salary in retirement of the [[principal]] on the loan, notwithstanding the principal amortisation schedule in the [[mortgage]] loan, and refuse to let the borrower have any money to pay her bills. That is plainly potty. | |||
In any case, I bet Citi wished they were English. | |||
{{sa}} | {{sa}} | ||
*[[Restitution]] | *[[Restitution]] | ||
*{{casenote|Citigroup|Brigade Capital Management}} | *{{casenote|Citigroup|Brigade Capital Management}} | ||
*{{casenote|Barclays Bank Ltd|WJ Simms}} | *{{casenote|Barclays Bank Ltd|WJ Simms}} | ||
{{ref}} | |||
{{C|stupid bankers}} | |||