McFarland v. Stillwater County

• Decision Date: 13 January 1940
• Docket Number: 7934.
• Citation: 98 P.2d 321,109 Mont. 544
• Parties: McFARLAND v. STILLWATER COUNTY.
• Court: Montana Supreme Court

98 P.2d 321

109 Mont. 544

McFARLAND v. STILLWATER COUNTY.

No. 7934.

Supreme Court of Montana

January 13, 1940

Appeal from District Court, Stillwater County; Stewart McConochie Judge.

Action for money had and received by Robert McFarland against Stillwater County, Montana, a quasi-municipal corporation. From a judgment for the defendant, the plaintiff appeals.

Reversed and remanded, with direction.

Stanley E. Felt, of Billings, for appellant.

P. R Heily, of Columbus, for respondent.

ANGSTMAN Justice.

This is an appeal from a judgment in favor of Stillwater county in a case wherein the plaintiff, McFarland, sought to recover the sum of $317.79 which he paid to the county under the following circumstances:

The plaintiff was a depositor in the Stockman's National Bank of Columbus on the 15th day of December, 1924, and the owner of three shares of its capital stock. On that date he executed his note to the bank for the sum of $500, which was placed to his credit, making his total deposit $2,116. On January 7, 1925, the bank was declared insolvent and a receiver was appointed. Prior to the insolvency declaration and prior to the maturity of the note, the bank pledged it to the treasurer of Stillwater county as supplemental security for county funds then on deposit in the bank. On August 23 1928, the receiver, in distributing the assets of the bank, issued a check in the sum of $317.79 to the plaintiff as his share, based upon his deposit of $2,116. The receiver mailed this check to the county treasurer, who notified the plaintiff of the fact that the check was in his possession. The plaintiff on August 24, 1928 endorsed the check and paid the amount to the county treasurer.

Plaintiff bases his right to recover upon the ground of mistake, in that, when he endorsed the dividend check and paid the proceeds of the check to the county, he thought the county was the owner and holder of the note and as such entitled to enforce payment, whereas, since it was not the owner or holder, and since, as he contends, the pledge was unlawful, he was entitled, as a matter of law, to offset the note against his deposit in the bank.

Plaintiff testified that he knew that the note had been pledged by the bank to the county as collateral security shortly after its execution in 1924, but stated that he understood that the county was the legal owner of the note with the right to enforce collection thereof; that the county treasurer had demanded of him that he pay the note to it; and that he did not discover the mistake until April, 1931, when the bank instituted action against him on the note, alleging in the complaint that it was the lawful owner and holder thereof.

The evidence offered by the defendant consisted of testimony of the county attorney, who said that within two or three weeks after plaintiff paid the money in question he had a conversation with plaintiff in which plaintiff asked him his idea with reference to plaintiff's right to a refund; that the county attorney then advised him that he did not think "anybody was very clear as to whether the county had a right to accept that form of security for county deposits." The county attorney testified that he then advised plaintiff to bring an action to test the question. It is thus apparent that both parties were in doubt as to the legal right of the bank to pledge its assets to secure a deposit.

Before proceeding to the merits of the controversy, it is well to note some general principles applicable to such an action. The weight of authority sustains the view that money paid voluntarily, but under a mistake of law, cannot be recovered. 48 C.J. 755. There is, however, respectable authority to the contrary. The cases supporting the minority view are cited in 21 R.C.L., p. 172, note 4, and in 48 C.J. 757, note 52. In addition to the cases there cited supporting the minority view, are the following: English v. Smith, 123 Conn. 572, 196 A. 781; Allen Lumber Co. v. Howard, 254 Ky. 778, 72 S.W.2d 483, and Kentucky West Virginia Gas Co. v. Preece, 260 Ky. 601, 86 S.W.2d 163, 166. In the last cited case the court quoted the following from one of its earlier cases, Underwood v. Brockman, 4 Dana, Ky., 309, 29 Am.Dec. 407: "'It is well known, that all persons do not understand some of the plainest rules of law, and that no person, however enlightened, knows all the law. And if one, ignorant of a plain principle of law, shall, without any other motive or consideration than an erroneous opinion respecting his legal rights and obligations, release a right, pay money, or undertake to do any act, what principle of law, or dictate of justice or policy, would require him to be bound, as with a Gordian knot, which nothing but the sword could loose? Why should he be punished in such a case, for such ignorance? Or why should the other party be enriched or benefited, without any equivalent or merit of any kind or to any extent whatsoever? A mistake of fact might be sufficient to entitle to relief or exoneration, because such a mistake would show, that the contract was not such as the parties, or at least one of them, contemplated or would have made, had there been no mistake. Might not a mistake as to the law, in a parallel case, be equally availing, and for precisely the same reason? Undoubtedly it might, and, as we think, should; and such we understand to be the rational and consistent doctrine of the common law established in Kentucky."'

If the mistake in question here be regarded as one of law and not of fact, plaintiff should have the right to recover, particularly in view of our statute, section 7486, Revised Codes, reading in part: "Mistake of law constitutes a mistake, within the meaning of this chapter, only when it arises from:

"1. A misapprehension of the law by all parties, all supposing that they knew and understood it, and all making substantially the same mistake as to the law;" etc.

Under an identical statute the supreme court of California has held that a recovery is proper where the mistake is one of law. Gregory v. Clabrough's Ex'rs, 129 Cal. 475, 62 P. 72. The supreme court of North Dakota, in Jabcobson v. Mohall Tel. Co., 34 N.D. 213, 157 N.W. 1033, L.R.A.1916F, 532, took the opposite view, but we believe the rule followed by the supreme court of California to be the sounder. In fact, this court has already in an analogous case adopted this rule. Hicks v. Stillwater County, 84 Mont. 38, 274 P. 296.

As in the...