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Current Developments in the Commercial Divisions of the
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Posted: November 10, 2015

First Department Analyzes Voluntary Payment Doctrine

On November 5, 2015, the First Department issued a decision in DRMAK Realty LLC v. Progressive Credit Union, 2015 NY Slip Op. 08044, analyzing the voluntary payment doctrine.

In DRMAK Realty, the defendant loaned the individual plaintiff $3.35 million, secured by a mortgage on a condominium owned by an entity he controlled. The individual plaintiff several times defaulted on the loan. “In mid-2013, [the individual plaintiff] sought to settle the loan and refinance with a different lender.” The

defendant’s general counsel advised him in an email that defendant was “willing to accept the amount of $3,536,580 as settlement in exchange for a release of its mortgage lien” on the condominium. The amount included “all legal fees, delinquent fines, assignment/release fees, May 2013 regular loan payment and all other fees, charges or expenses which are incurred or may be incurred prior to loan payoff by 5/20/2013.”

Plaintiffs complained to the defendant’s general counsel that defendant was attempting to “hold [the plaintiffs] up,” but eventually, they agreed to the defendant’s terms and closed on the refinance. The trial court dismissed the action. The First Department affirmed, explaining:

The voluntary payment doctrine bars recovery of payments voluntarily made with full knowledge of the facts, in the absence of fraud or mistake of material fact or law. The onus is on a party that receives what it perceives as an improper demand for money to take its position at the time of the demand, and litigate the issue before, rather than after, payment is made. Here, there is no claim of fraud or mistake. Defendant was entirely aboveboard about the amount of money it expected to be paid to settle the loan. Nevertheless, [the individual plaintiff] made the calculated decision to schedule the closing and to pay off the entire amount demanded. Nor, as discussed below, did [he] take his position at the time of the demand.

(Internal quotations and citations omitted) (emphasis added). The First Department went on to hold that the allegations in the complaint did not support an argument that the plaintiffs acted under duress.

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