Miller v. . Schloss
1916 N.Y. LEXIS 1080, 113 N.E. 337, 218 N.Y. 400 (1916)
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Rule of Law:
A quasi-contract, which rests on the equitable principle of preventing unjust enrichment, cannot be implied by law when a plaintiff voluntarily confers a benefit with full knowledge of the facts, against the defendant's express declarations, and in contradiction of an existing agreement between the parties.
Facts:
- Miller & Co. (plaintiffs) were cotton brokers who executed orders for Schloss (defendant), who brought them customers.
- Transactions were maintained in two separate accounts: Account #1, for a customer named Barrett, had a large deficit that Schloss could not pay.
- Account #2 was for a customer named Hunt. Miller & Co. and Schloss expressly agreed to keep Account #2 separate and distinct from Account #1's debt.
- Following this agreement, a transaction for Hunt resulted in a credit balance of approximately $6,545 in Account #2, which Miller & Co. knew was derived from Hunt's funds and trading.
- Over Schloss's persistent protests that the money belonged to Hunt, Miller & Co. applied the credit balance from Hunt's Account #2 to cancel Schloss's debt in Account #1.
- When taking the funds, Miller & Co. told Schloss they would 'take care of any suit' that Hunt might bring against them.
- Schloss informed Miller & Co. that he was financially unable to pay Hunt the amount they had taken.
Procedural Posture:
- A third party, Hunt, successfully sued Miller & Co. (plaintiffs) and recovered a judgment for the funds Miller & Co. had taken.
- After paying the judgment to Hunt, Miller & Co. sued Schloss (defendant) in a trial court to recover that amount.
- The jury at trial rendered a verdict in favor of the defendant, Schloss.
- The plaintiffs, Miller & Co., appealed the jury verdict to the Appellate Division, an intermediate appellate court.
- The Appellate Division reversed the trial court's judgment and ordered a judgment in favor of the plaintiffs.
- The defendant, Schloss, then appealed the Appellate Division's decision to the Court of Appeals of New York, the state's highest court.
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Issue:
Does the law create a quasi-contractual obligation for a debtor to repay a creditor when the creditor, with full knowledge and against the debtor's protest, applies a third party's funds to cancel the debt and is later compelled to repay the third party?
Opinions:
Majority - Collin, J.
No. The law does not create a quasi-contractual obligation under these circumstances. A quasi-contract is an obligation created by law, not by agreement, to prevent a person from being unjustly enriched at another's expense. This principle does not apply here. The plaintiffs' actions were entirely voluntary and undertaken with full knowledge that the funds belonged to Hunt and that the defendant protested their use. A contract cannot be implied in fact against the express declaration of the party to be charged. Furthermore, a quasi-contract cannot be imposed because the plaintiffs did not place any money in the defendant's possession that he was obligated to pay over; they merely made a book entry for their own benefit to settle a bad debt, expressly assuming the risk of being sued by Hunt. The defendant was not unjustly enriched because the entire transaction was an arrangement by the plaintiffs for their own benefit, and there is no basis in equity or good conscience to obligate the defendant to repay them.
Analysis:
This case clarifies the boundaries of the equitable doctrine of quasi-contract, or unjust enrichment. It establishes that this remedy is not available to a 'volunteer'—a party that knowingly and voluntarily confers a benefit upon another against their will and in violation of an express agreement. The decision reinforces that quasi-contract is rooted in equity and good conscience, and thus a plaintiff who acts with full knowledge and assumes the risk of their actions cannot later seek restitution. This precedent limits the application of implied contracts, ensuring they are not used to rescue parties from the consequences of their own calculated, albeit wrongful, business decisions.
