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Made an erroneous-but-voluntary contract payment? Too bad, says Eighth Circuit

An Eighth Circuit opinion illustrates the principle that under Missouri law, you’re out of luck if you voluntarily pay an amount supposedly required by a contract, but it later turns out that you didn’t need to make the payment after all.  Contract drafters therefore might want (x) to include in their contracts express provisions for refunding er­ron­e­ous payments, but also (y) to set time limits for requesting such refunds.

In Affordable Communities v. Fannie Mae, the borrower on an $8 million mortgage loan paid (what amounted to) a prepayment penalty of $500,000. A year later, the borrower’s accountant pointed out that the loan documents contained an exception that would have excused the borrower from paying the prepayment penalty. The borrower sued for a refund, claiming breach of contract. The appeals court affirmed the district court’s rejection of the borrower’s claim, including on the alternate ground that the claim was barred by the voluntary payment doctrine:

… The doctrine provides that “a person who voluntarily pays money with full knowledge of all the facts in the case, and in the absence of fraud and duress, cannot recover it back, though the payment is made without a sufficient con­sid­er­a­tion, and under protest.” Huch v. Charter Commc’ns, Inc., 290 S.W.3d 721, 726 (Mo. 2009) (internal quotation marks omitted). …

The district court properly determined that the voluntary payment doctrine precludes Affordable from recovering on its breach of contract claim.

  • Affordable had full knowledge of all the relevant facts.
  • Cohen signed the contract and had access to all of the loan documents, had thirty years of experience with large real estate investments, and was represented throughout the prepayment transaction by an attorney who reviewed the loan documents.
  • Moreover, Affordable failed to present any evidence of fraud or duress.

We conclude that the district court did not err in determining that the voluntary payment doctrine prevents Affordable from recovering on its breach of contract claim.

Affordable Communities of Missouri v. Fed. Nat’l Mortgage Ass’n, No. 15-1566 (8th Cir. Feb. 24, 2016) (extra paragraphing, link, and bullets added). See generally Colin E. Flora, Practitioner’s Guide to the Voluntary Payment Doctrine, 37 S. Ill. U.L.J. 91 (2012).

Drafting lessons:  In contract negotiations —

  • When representing a party that might have to pay money, consider whether to include an express provision for a refund of payments that turn out not to have been required after all;
  • On the other hand, when representing a prospective payee that’s agreeing to such a refund provision, consider including a time limit for requesting refunds, after which a payment becomes non-refundable even if made erroneously.
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