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Discharge-for-value defense: Difference between revisions
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{{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.”}} | {{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 | 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. | 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. | ||
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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. | 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. | ||
This is | 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. | In any case, I bet Citi wished they were English. | ||
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*{{casenote|Barclays Bank Ltd|WJ Simms}} | *{{casenote|Barclays Bank Ltd|WJ Simms}} | ||
{{ref}} | {{ref}} | ||
{{C|stupid bankers}} | |||