Let me start with an apology to my readers. I am long overdue for a post. My “day job” has been busy and I have just been unable to set time aside to share my observations on the state of Commercial Finance Law. I will try to catch up. The courts have been busy with both good and bad decisions.
Today, we look at a July 19, 2017, decision from the United States District Court for the District of Kansas. Ericsson Inc., the plaintiff and an account debtor of Stutler Technologies, brought the action against Corefirst Bank &Trust after Ericsson made an erroneous overpayment to Stutler. As you might imagine, after the payment was made and deposited into Stutler’s account at Corefirst, Corefirst applied the payment to debts owed to Corefirst by Stutler.
Stutler sold Ericsson’s goods and services and Ericsson paid Stutler commissions for its sales. Those commissions were deposited into Stutler’s accounts at Corefirst. Stutler was indebted to Corefirst for loans and credit card debts which were secured by a security agreement that, amongst other things, gave Corefirst a right of setoff against funds that came into its possession.
At some point Ericsson realized that it had overpaid Stutler over $120,000 and Stutler notified Corefirst of this occurrence. Ericsson made demands for repayment against both Stutler and Corefirst and subsequently brought an action against Corefirst for money had and received and unjust enrichment.
Corefirst argued that it was a bona fide payee under the Restatement (Third) of Restitution and Unjust Enrichment Section 67. The Court noted that it was clear that Ericsson was entitled to restitution for its mistaken overpayment to Stutler (who was not a party to the lawsuit) BUT did not have rights against Corefirst.
The Court noted that the Restatement (Third) provides a defense to a restitution claim to a payee who takes a payment without notice of any facts underlying a claim for restitution so long as the payee used the funds in satisfaction or reduction of the payee’s valid claim as a creditor of the payor or for another person.
It must be noted that the various Restatements are not “law” but instead serve as guidance. The Court noted that Kansas has not adopted the Restatement but the motion pointed out that Ericsson provided no authority to the contrary. The Court went on to distinguish Ericsson’s situation from a Michigan case where General Motors had erroneously made overpayments to a supplier.
The Michigan Court noted that under Article 9 of the UCC a party’s security interest does not attach to collateral unless “the debtor acquires rights in the collateral” ruling in favor of GM. However, the Kansas Court noted that the GM case predated revisions to Section 67 of the Restatement, and Corefirst was a bona fidepayee of Stutler’s.
The Kansas Court ruled in favor of Corefirst, allowing it the windfall resulting from Ericsson’s erroneous overpayment.
Lesson – Kansas may have applied the childhood rule of “finders keepers – losers weepers” but don’t count on that rule being applied in all of the other 49.
Ericsson v Corefirst 2017 WL 3053646