D. Defenses

• Library: Elements of Civil Causes of Action (SCBar) (2021 Ed.)

D. Defenses

South Carolina appellate courts do not appear to have discussed the statute of limitation applicable to actions for money had and received; however, it would seem likely that, for purposes of the statute of limitation, courts will treat it as a contract action,⁷⁴ in which case the applicable statute is three years.⁷⁵

There is some authority for a defense of what is in essence, detrimental reliance. That is, the defendant received money through a mistake made by the plaintiff, but the defendant's position or circumstances have changed and cannot be restored.⁷⁶ While a number of South Carolina appellate opinions have made reference to, or applied, this principle, it does not appear that any defendant has been successful in an appellate court in defending against an action for money had and received by arguing changed position,⁷⁷ undoubtedly because the standard is very high.⁷⁸ While it might be argued that changed position means that equity favors the defendant and should therefore negate the second element of the action by making the complaint subject to a motion to dismiss for failure to state a cause of action, the better analysis is probably to treat the changed position argument as a defense, since, in effect, the assertion is that the money did belong to the plaintiff and, but for the defendant's change in position, should be returned to the plaintiff.

Recovery of money on an illegal contract that has been fully executed will ordinarily be barred.⁷⁹ Waiver and estoppel,⁸⁰ and perhaps negligence,⁸¹ are also possible defenses. A variant of waiver is found in the oft-stated maxim that no action will lie to recover money that is voluntarily paid with full knowledge of all material facts.⁸² Whether the principle is a defense or serves to negate the second element of the action is not readily apparent. Indeed, much about the principle is unclear or troubling. For example, it is said the general rule doesn't apply if the money issue was obtained by coercion of some kind,⁸³ although it would generally seem that if there has been coercion, any payment would be by definition involuntary. The meaning of "full knowledge of all material facts" is also unclear.

An example of the general principle is found in Shockley v. Wickliffe.⁸⁴ In that case the plaintiff borrowed money on two occasions and executed promissory notes. He repaid all the money, but when the man who had held the notes died, his heirs claimed they had the notes in their possession and that the money had not been repaid. They demanded payment. The plaintiff responded that he had repaid the money. However, realizing the notes were not canceled of record and being able to locate neither the settlement made between him and the decedent nor the notes and mortgages that were delivered to him by the decedent, he paid the defendants under protest believing he had no defense. According to the plaintiff, the heirs then delivered a satisfaction of the mortgages to him, but not the original mortgages. Over six years later, the plaintiff found the notes, mortgages, and settlement, and instituted an action against the heirs to recover the money he had paid them.⁸⁵ The opinion does not name the action,⁸⁶ but the complaint alleged that the plaintiff "... was induced by reason of mistake, fraud, and deceit on the part of the defendants to make the payment ... the benefit of which was received by the defendants, and that he did not discover such mistake, fraud, and deceit until his discovery of the papers."⁸⁷ The "mistake, fraud, and deceit" was evidently the defendant's claim that they had the notes and mortgages in their possession and would deliver them to the plaintiff after payment. The court said that it could find no facts to show the payment was involuntary and that "money voluntarily paid with full knowledge of all material facts and without any fraud, duress, or extortion cannot be recovered, although there was no legal obligation to make such payment." It noted that the plaintiff claimed he paid under the mistaken belief the defendants held the notes and mortgages, but said that there was no mistake on the part of the defendants and any mistake was by the plaintiff. There was no fraud because the plaintiff, knowing he had already paid, could not have relied on the defendant's representations that they had the notes and mortgages in their possession. Further, opined the court, the plaintiff failed to take the simple precaution of demanding that the defendants produce the notes and mortgages or provide a satisfaction of the mortgages as a prerequisite to payment. The court concluded the plaintiff was "grossly negligent" in paying the money "when by the exercise of the slightest diligence he could have ascertained that they did not in fact hold the notes and mortgages ...".

Shockley is troubling in several respects. First, since the plaintiff took six years to discover the documents, the court could have resolved the case on the basis of laches and avoided the discussion of voluntary payment. Secondly, by basing its holding on the "voluntary payment" the case provides precedent for an inequitable result. Consider a change in the facts of Shockley. The plaintiff believes he has lost the documents that show payment. He pays the defendants under protest and the mistaken belief he has no defense to their demand. Two months later, to his surprise, he finds the documents. Should not the defendants in "equity and good conscience" be required to pay the money over to the plaintiff? Should the defendants benefit from their misrepresentation? Should they benefit if they honestly, but mistakenly, believed they had valid, unpaid notes and mortgages in their possession? Should the plaintiff's confusion and poor recordkeeping allow the defendants to retain what amounts to a windfall, money they were never owed? Arguably, from an equitable standpoint, the answer to all three questions should be no and Shockley should have been decided on the plaintiff's failure to...