Opinion ID: 2995143
Heading Depth: 2
Heading Rank: 1

Heading: Voluntary Payment Doctrine

Text: Illinois has recognized the ancient, common-law roots of the voluntary payment doctrine. Accordingly, we begin our analysis by recalling briefly the origins and development of that doctrine. Although the principle that ignorance of the law is no excuse has been unquestioned in Anglo-American criminal jurisprudence, the development of an analogous principle in civil matters always has been subject to more limitations because of the development of equitable principles in chancery practice. See generally Stephen L. Camp, Note, The Voluntary-Payment Doctrine in Georgia, 16 Ga. L. Rev. 893 (1982). Indeed, English law at one time recognized in its chancery courts the general rule that relief would be granted for both mistakes of fact or law. See id. at 895 (citing various cases in which the English courts granted relief for mistakes without distinguishing between mistakes of fact and mistakes of law). In the early nineteenth century, however, the English courts and, soon thereafter, American tribunals began to acknowledge that recovery ought not be premised on a mistake of law made with full knowledge of the facts. See id. at 895-98. The voluntary payment doctrine is a corollary to the mistake of law doctrine and, in its general formulation, holds that a person who voluntarily pays another with full knowledge of the facts will not be entitled to restitution. See id. at 899; see also Restatement (3rd) of Restitution and Unjust Enrichment sec. 6 (2000). Its ties to the mistake of law doctrine have remained clear, as demonstrated by the fact that most jurisdictions that have rejected the mistake of law doctrine also have rejected the voluntary payment doctrine. See Camp, supra, at 899. Nevertheless, equitable principles of restitution have continued to exert a strong influence on the application of the doctrine. Consequently, most courts, and, when statutory formulations have been utilized, legislatures have made exceptions to the voluntary payment doctrine to recognize the policy concerns that animate the basic restitutionary principle that [a] person who is unjustly enriched at the expense of another is liable in restitution to the other. Restatement (3rd) of Restitution and Unjust Enrichment sec. 1; see also Camp, supra, at 907-13.
The voluntary payment doctrine in Illinois reflects the common-law history of the doctrine, including its roots in the mistake of law doctrine and the countervailing restitutionary principles. Not too long ago, an Illinois appellate court succinctly stated the general rule: Absent fraud, coercion or mistake of fact, monies paid under a claim of right to payment but under a mistake of law are not recoverable. Smith, 658 N.E.2d at 1330. The reason for the rule, the court explained, is: quite obvious when applied to a case of payment on a mere demand of money unaccompanied with any power or authority to enforce such demand, except by a suit at law. In such case, if the party would resist an unjust demand, he must do so at the threshold. The parties treat . . . each other on equal terms, and if litigation is intended by the one of whom the money is demanded, it should precede payment. When the person making the payment can only be reached by a proceeding at law, he is bound to make his defense in the first instance, and he cannot postpone the litigation by paying the demand in silence or under a reservation of right to litigate the claim, and afterward sue to recover the amount paid. Id. (quoting 66 Am. Jur. 2d Restitution & Implied Contracts sec. 94, at 1035-36 (1973)). Two considerations are clear from the Illinois court’s discussion. First, the voluntary payment doctrine retains its affinity to the mistake of law doctrine. Second, the voluntary payment rule ensures that those who desire to assert a legal right do so at the first possible opportunity; this way, all interested parties are aware of that position and have the opportunity to tailor their own conduct accordingly. Illinois recognizes the traditional defenses to the voluntary payment doctrine--fraud and mistake of fact-- defenses designed to identify instances in which the countervailing policies of traditional restitutionary principles should prevail. See, e.g., Smith, 658 N.E.2d at 1329-30; Jursich, 441 N.E.2d at 866. Illinois also has recognized the defense of coercion and, like many jurisdictions, has expanded this defense to cover not only cases of actual physical duress but also of business necessity. See Ill. Merchants’ Trust Co. v. Harvey, 167 N.E. 69, 71 (Ill. 1929), overruled in part, Kanter & Eisenberg v. Madison Assocs., 508 N.E.2d 1053, 1055-56 (Ill. 1987). The Illinois Supreme Court explained in Illinois Merchants’ Trust that: At the common law duress meant duress only of person, and nothing short of a reasonable apprehension of imminent danger to life, limb, or liberty sufficed as a basis for an action to recover money paid. The doctrine became gradually extended, however, to recognize duress of property as a sort of moral duress, which, equally with duress of person, entitled one to recover money paid under its influence. Today the ancient doctrine of duress of person (later of goods) has been relaxed, and extended so as to admit of compulsion of business and circumstances. 167 N.E. at 71./1
The district court correctly set out the controlling principle of law as found in the decisions of the Illinois courts. It further recognized the exceptions to the prevailing rules-- exceptions designed, as we have noted, to foster the restitutionary principles that have long stood in tension with the voluntary payment rule. The district court properly acknowledged that Mr. Randazzo could not make out a case for fraud or mistake of fact. To the extent that Mr. Randazzo was ignorant of his rights under the loan agreement, it was because he refused to apprise himself of those rights by reading the appropriate documents. Illinois courts have made clear that, if a party signs a contract without reading it, he must bear the consequences. See Jursich, 441 N.E.2d at 868; see also Pace Communications, Inc. v. Moonlight Design, Inc., 31 F.3d 587, 592 (7th Cir. 1994); Northwestern Nat’l Ins. Co. v. Donovan, 916 F.2d 372, 378 (7th Cir. 1990). Mr. Randazzo cannot, moreover, make out a case that his compliance with Harris’ demand was based on necessity or was intended to prevent an injury to person or property. Indeed, even if we were to conclude that Mr. Randazzo acted to prevent an injury, we point out again that he found himself in that position simply because he had elected not to become knowledgeable about the nature of his legal rights and, correspondingly, had failed to assert them. His own testimony makes clear that he never apprised himself of his legal rights under the contract and never asserted those rights. Although Illinois recognizes protest as particularly good evidence of duress, see Smith, 658 N.E.2d at 1331; Arra v. First State Bank & Trust Co., 621 N.E.2d 128, 131 (Ill. App. Ct. 1993), Mr. Randazzo’s protest was not the assertion of a legal right but simply an appeal to Harris’ business judgment. Instead of protesting the stock sale as contrary to a specific provision in the loan documents, Mr. Randazzo merely complained, asking Callahan, for example, how . . . can you sell me out when I’ve been a customer of your bank for over 25 years. R.15, Def.’s Ex.2, Randazzo Dep. at 250. Faced with a demand for a payment by a party with whom he had a contractual arrangement, Mr. Randazzo, rather than assert his rights under the contract in a timely and forthright manner, chose to accept the other party’s interpretation of his legal rights. Indeed, this behavior is precisely the sort of conduct that the voluntary payment doctrine was designed to discourage. Under these circumstances, the district court correctly decided that the voluntary payment doctrine was applicable. Mr. Randazzo, therefore, cannot recoup his payment to Harris./2