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Citigroup v Brigade Capital Management: Difference between revisions
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Citigroup v Brigade Capital Management (view source)
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'''As principal''': If Citi acted as a principal, then no debt was due, no contract existed, and we would look at common law principles of [[unjust enrichment]] and [[restitution]] to return [[money had and received]].<ref>{{restitution capsule}}</ref> An alternative action might lie in the tort of conversion. But, as against the lenders, Citi was acting, and holding itself out as acting, as [[agent]]. | '''As principal''': If Citi acted as a principal, then no debt was due, no contract existed, and we would look at common law principles of [[unjust enrichment]] and [[restitution]] to return [[money had and received]].<ref>{{restitution capsule}}</ref> An alternative action might lie in the tort of conversion. But, as against the lenders, Citi was acting, and holding itself out as acting, as [[agent]]. | ||
'''As agent''': If Citi acted as agent, then we look through Citi to its principal, Revlon. That Revlon didn’t, itself, ask anyone to pay anything to anyone, and didn’t itself pay anything to anyone, doesn’t matter. Citi’s actions, [[Ostensible authority|ostensibly]] on its behalf, are attributable to it. | '''As agent''': If Citi acted as agent, then we look through Citi to its principal, Revlon. That Revlon didn’t, itself, ask anyone to pay anything to anyone, and didn’t itself pay anything to anyone, doesn’t matter. Citi’s actions, [[Ostensible authority|ostensibly]] on its behalf, are attributable to it. Here there is a conflict, in English law, between agency principles from the eye of the third party (in particular [[ostensible authority]]) and bank mandate principles, which are viewed from the perspective of the customer. In New York law, this tension is resolved differently, as we shall see. | ||
===Revlon v lenders=== | ===Revlon v lenders=== | ||
Revlon might try to claim under a [[mistake]], though that would be difficult as any mistake was not mutual, and unilateral mistakes are not compensable under the ancient doctrine of ''[[durum caseum]]''. It might also claim that as the debt was not then due the lenders should be obliged to return the money under some kind of [[constructive trust]] (or even [[money had and received]]). But since it wasn’t out of pocket and wasn’t being sued, Revlon might be forgiven for just sitting quietly and keeping its powder dry in case it needed it against Citi. | Revlon might try to claim under a [[mistake]], though that would be difficult as any mistake was not mutual, and unilateral mistakes are not compensable under the ancient doctrine of ''[[durum caseum]]''. It might also claim that as the debt was ''not'' then due the lenders should be obliged to return the money under some kind of [[constructive trust]] (or even [[money had and received]]). But — since ''it'' wasn’t out of pocket and wasn’t being sued, Revlon might be forgiven for just sitting quietly and keeping its powder dry in case it needed it against Citi. | ||
There is also New York law authority that defeats a claim for [[unjustified enrichment]] where a recipient, without notice of mistake and not having induced the payment, receives funds that discharge a valid debt: | There is also New York law authority that defeats a claim for [[unjustified enrichment]] where a recipient, without notice of mistake and not having induced the payment, receives funds that discharge a valid debt: | ||
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This was the crux of the decision: the payment, though mistaken discharged a debt, was received without inducement or notice of the mistake. It is not at all clear that prepaying a loan when the loan is not due ''does'' discharge the debt, nor that the lenders can have been labouring under the slightest hint of an misapprehension that the payment was intentional and not mistaken — but the Judge was not prepared to play the [[Anus matronae parvae malas leges faciunt|little old lady]] card in favour of Citi. To the contrary, Citi got the [[durum caseum per magnos canibus]]'' treatment: the court considered itself bound rather literally by ''Banque Worms'', and I dare say that precedent will get a good testing on appeal. | This was the crux of the decision: the payment, though mistaken discharged a debt, was received without inducement or notice of the mistake. It is not at all clear that prepaying a loan when the loan is not due ''does'' discharge the debt, nor that the lenders can have been labouring under the slightest hint of an misapprehension that the payment was intentional and not mistaken — but the Judge was not prepared to play the [[Anus matronae parvae malas leges faciunt|little old lady]] card in favour of Citi. To the contrary, Citi got the [[durum caseum per magnos canibus]]'' treatment: the court considered itself bound rather literally by ''Banque Worms'', and I dare say that precedent will get a good testing on appeal. | ||
===Must the debt be “due”?=== | |||
A way out occurred to Citi: at the time of the payment, Revlon’s debt to the lenders was not, ''then'', due and payable. It would not mature for another three years. | |||
==Citi and Revlon== | ==Citi and Revlon== | ||
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As against a third party without notice, an [[agent]] with the [[ostensible authority]] to bind a principal, in fact, ''does'' so: this is part of the legal case for the lenders. Here Citi had been explicitly appointed by Revlon as [[agent]] and, for all the lenders knew or cared (let’s park [[constructive knowledge]] for now) is acting on instructions, within the scope of authority, and binds the principal. Hence the debt is discharged. To the rest of the world, Citi was an agent. | As against a third party without notice, an [[agent]] with the [[ostensible authority]] to bind a principal, in fact, ''does'' so: this is part of the legal case for the lenders. Here Citi had been explicitly appointed by Revlon as [[agent]] and, for all the lenders knew or cared (let’s park [[constructive knowledge]] for now) is acting on instructions, within the scope of authority, and binds the principal. Hence the debt is discharged. To the rest of the world, Citi was an agent. | ||
To Revlon, in making that payment, | To Revlon, in making that payment, Citi was ''not'' an agent. Revlon might say, “I did not ask you to make that payment. I did not want my debt discharged. I was rather enjoying ''not'' having to discharge it for the time being. So this one, Citi, is on you.” This might, indeed seem fair, if Citi can then proceed against the lenders in an action for [[money had and received]]. ''But it can’t''. Citi is in a [[paradox]]ical position: as regards the lenders it ''is'' an agent; as against the principal, it is ''not''. | ||
We might suppose that Citi has somehow assumed the lenders’ claims, then. But has it? This does not seem to be what it has done at all. It has ''repaid'' those loans, unasked, on Revlon’s behalf. Revlon neither agreed to it doing this, nor provided any [[consideration]] for it | We might suppose that Citi has somehow assumed the lenders’ claims, then. But has it? This does not seem to be what it has done at all. It has ''repaid'' those loans, unasked, on Revlon’s behalf. Revlon neither agreed to it doing this, nor provided any [[consideration]] for it. | ||
{{sa}} | {{sa}} | ||