(New Zealand) Mr and Mrs Goss, had been granted a loan by the claimant finance company under a mortgage instrument that had been avoided by the claimant because it had been fraudulently altered by Mr Haddon, an employee of the claimant, without the claimant’s authority. Mr Haddon was the brother of Mrs Goss. The advance from the claimant having been made available to Mr and Mrs Goss, it was as agreed between them and Mr Haddon in fact received by Mr Haddon. Mr and Mrs Goss took no security from Mr Haddon. Mr Haddon was unable to repay the advance. Mr and Mrs Goss argued that their inability to recover the money from Mr Haddon constituted a defence of change of position to the claimant’s action for restitution of the money paid for a consideration that had totally failed.
Held: The loan remained repayable despite the unenforceability of the mortgage instrument under which it was secured. The defence failed because Mr and Mrs Goss knew that the money lent would have to be repaid to the claimant and, in paying it to Mr Haddon, they had taken the risk that the loss would fall on them.
Lord Goff said: ‘From the beginning, the Defendants were under an obligation to repay the advance once it had been paid to them or to their order; and this obligation was of course unaffected by the fact that they had allowed the money to be paid over to Mr Haddon. The effect of the alteration of the mortgage instrument was that their contractual obligation to repay the money was discharged; but they had nevertheless been enriched by the receipt of the money, and prima facie were liable in restitution to restore it. They had however allowed the money to be paid over to Mr Haddon in circumstances in which, as they well knew, the money would nevertheless have to be repaid to the company. They had, therefore, in allowing the money to be paid to Mr Haddon, deliberately taken the risk that he would be unable to repay the money, in which event they themselves would have to repay it without recourse to him. Since any action by them against Mr Haddon would now be fruitless they are seeking, by invoking the defence of change of position, to shift that loss onto the company. This, in their Lordships’ opinion, they cannot do. The fact that they cannot now obtain reimbursement from Mr Haddon does not, in the circumstances of the present case, render it inequitable for them to be required to make restitution to the company in respect of the enrichment which they have received at the company’s expense.’
Judges:
Lord Goff of Chieveley, Lord Jauncey of Tullichettle, Lord Steyn, Lord Hoffmann, Lord Cooke of Thorndon
Citations:
Gazette 12-Jun-1996, Times 06-Jun-1996, [1996] UKPC 17, [1996] AC 788
Links:
Jurisdiction:
England and Wales
Citing:
Cited – Davidson, Public Officer, &Amp;C v Cooper And Another 6-Jul-1844
. .
Cited – Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd HL 15-Jun-1942
A contract for the supply by the respondents of special machinery to be manufactured by them was treated as an ordinary contract for the sale of goods. It began valid, but suffered frustration by the outbreak of war.
Held: Lord Wright restated . .
Cited – David Securities Pty Ltd v Commonwealth Bank of Australia 7-Oct-1992
(High Court of Australia ) Restitution – Money paid under mistake – Mistake of law – Right to recover – Unjust enrichment – Defences – Change of position. . .
Cited by:
Cited – Kommune and Another v DEPFA Acs Bank ComC 4-Sep-2009
Local authorities in Denmark sought to recover sums paid to the defendant banks for swap trading, saying that the payments had been outwith their powers. . .
Lists of cited by and citing cases may be incomplete.
Banking, Commonwealth, Equity
Updated: 19 May 2022; Ref: scu.80939
