THE SUPREME COURT OF THE
FEDERATED STATES OF MICRONESIA
TRIAL DIVISION
Cite as Bank of Hawaii v. Air Nauru,
7 FSM Intrm. 651 (Chk. 1996)

[7 FSM Intrm. 651]

BANK OF HAWAII,
Plaintiff,

vs.

AIR NAURU,
Defendant.

CIVIL ACTION NO. 1996-1028

ORDER GRANTING JUDGMENT

Richard H. Benson
Associate Justice

Hearing:  November 15, 1996
Decided:  December 3, 1996

APPEARANCE:
For the Plaintiff:     Andrew Clayton, Esq.
                  Law Offices of R. Barrie Michelsen
                  P.O. Box 1450
                  Kolonia, Pohnpei FM 96941

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HEADNOTES
Remedies ) Restitution
     As a general rule, where money is paid under a mistake of fact, and payment would not have been made had the facts been known to the payor, such money may be recovered even though the person to whom the money was paid under a mistake of fact was not guilty of deceit or unfairness, and acted in good faith, nor does the payor's negligence preclude recovery.  The fact that money paid by mistake has been spent by the payee is generally insufficient to bar restitution to the payor.  Bank of Hawaii v. Air Nauru, 7 FSM Intrm. 651, 653 (Chk. 1996).

[7 FSM Intrm. 652]

Remedies ) Restitution
     Restitution is a quasi-contract action based on a tort that is an alternative remedy to a tort action for damages.  Bank of Hawaii v. Air Nauru, 7 FSM Intrm. 651, 653 (Chk. 1996).

Torts ) Conversion
     The elements of an action for conversion are the plaintiffs' ownership and right to possession of the personalty, the defendant's wrongful or unauthorized act of dominion over the plaintiff's property inconsistent with or hostile to the owner's right, and resulting damages.  Bank of Hawaii v. Air Nauru, 7 FSM Intrm. 651, 653 (Chk. 1996).

Torts ) Conversion; Torts ) Damages
     The measure of damages in conversion is the property's market value at the time of conversion plus the legal rate of interest.  Bank of Hawaii v. Air Nauru, 7 FSM Intrm. 651, 653 (Chk. 1996).

Torts ) Conversion
     When there has been no wrongful taking or disposal of the goods, and the defendant has merely come rightfully into possession and then refused to surrender them, demand and refusal are necessary to the existence of the tort of conversion.  Continued silence and inaction can amount to a refusal.  Bank of Hawaii v. Air Nauru, 7 FSM Intrm. 651, 653 (Chk. 1996).

Torts ) Conversion; Torts ) Damages
     Punitive damages may be recoverable for conversion where the defendant's act was accompanied by fraud, ill will, malice, recklessness, wantonness, oppressiveness, willful disregard of the plaintiff's rights, or other circumstances tending to aggravate the injury, but defendant's mere failure to respond to an inquiry, or to answer a complaint is not a circumstance entitling a plaintiff to punitive damages.  Bank of Hawaii v. Air Nauru, 7 FSM Intrm. 651, 653 (Chk. 1996).
*    *    *    *

COURT'S OPINION
RICHARD H. BENSON, Associate Justice:
     On April 6, 1993, the Bank of Hawaii, by mistake, made identical deposits of $7,500 (instead of $2,500) into Air Nauru bank accounts in Kosrae, Pohnpei and Chuuk.  Once this mistake came to the bank's attention it sought to retrieve the overpayments.  On June 22, 1993, the Bank of Hawaii contacted the bank branches where the deposits were made, advising them of the overpayments and requesting assistance in the recovery of the funds.  The Kosrae and Pohnpei branches each recovered $5,000 sometime in July, but the Bank of the FSM in Chuuk advised that they were unable to recover the funds as Air Nauru had spent the money and closed its Chuuk office.  On August 17, 1993, the bank contacted the Bank of Nauru (the source of the three $2,500 remittances) to request its assistance in recovering the funds, but to no avail.

     This suit, brought for conversion, seeks the return of the $5,000 mistakenly deposited in the account of Air Nauru's Chuuk office.  Defendant Air Nauru was served with the complaint and summons on June 12, 1996, but did not answer. Air Nauru's default was entered on July 12, 1996.  The bank now asks the court to enter a default judgment for $5,000, plus costs, nine percent interest from April 6, 1993, and exemplary damages.

     The bank is certainly entitled to restitution of the $5,000 it mistakenly paid to Air Nauru.

[7 FSM Intrm. 653]

As a general rule, where money is paid under a mistake of fact, and payment would not have been made had the facts been known to the payor, such money may be recovered.  The fact that the person to whom the money was paid under a mistake of fact was not guilty of deceit or unfairness, and acted in good faith, does not prevent recovery of the sum paid, nor does the negligence of the payor preclude recovery.

Bank of Napierville v. Catalano, 408 N.E.2d 441, 10 A.L.R.4th 514, 518 (Ill. App. Ct. 1980).  Generally, the fact that money paid by mistake has been spent by the payee is insufficient to bar restitution to the payor.  Lawson v. Woodmen of the World, 53 P.2d 432, 436 (Utah 1936) (not a defense that money received was paid out for debt justly owed).  Restitution is a quasi-contract action based on a tort that is an alternative remedy to a tort action for damages.  William S. Prosser, The Law of Torts 628 (4th ed. 1971).  The bank, however, has pled its cause of action as one for conversion.

     The elements of an action for conversion are the plaintiffs' ownership and right to possession of the personalty, the defendant's wrongful or unauthorized act of dominion over the plaintiff's property inconsistent with or hostile to the owner's right, and resulting damages.  Gebhardt v. D.A. Davidson & Co., 661 P.2d 855, 858 (Mont. 1983).  The bank contends that, as a part of damages for conversion, it is also entitled to the nine percent statutory interest from the date it mistakenly deposited the funds in Air Nauru's Chuuk account.  It is true that one whose property is converted is entitled to interest at the legal rate, currently nine percent, from the time of conversion.  Bank of Guam v. Nukuto, 6 FSM Intrm. 615, 616 (Chk. 1994); cf. Gates Factory Store v. Coleman, 350 P.2d 559, 560 (Colo. 1960) (measure of damages in conversion is property's market value at time of conversion plus legal rate of interest).  The bank contends that the time of conversion was the day that it mistakenly deposited the $5,000 in Air Nauru's account.
 
     That date cannot be the time of conversion.  The mere unknowing receipt of money paid by mistake, although entitling the payor to restitution, cannot be a wrongful act of conversion.  "When there has been no wrongful taking or disposal of the goods, and the defendant has merely come rightfully into possession and then refused to surrender them, demand and refusal are necessary to the existence of the tort [of conversion]."  Prosser, supra, at 89.  Continued silence and inaction can amount to a refusal.  Id. at 90.  The only events in the record with a date certain, other than the mistaken payment, are the bank's requests to other banks for assistance, not demands on Air Nauru itself.  Although earlier demands may have been made, the only date I can be certain that a demand for repayment was made on Air Nauru was June 12, 1996, when the bank effected service of the summons and complaint.  The bank is therefore awarded nine percent interest from that date until the judgment is satisfied.

     The bank also seeks exemplary, or punitive damages for the conversion.  For this claim the bank relies upon the principle that, in the sound discretion of the trier of fact, punitive damages may be recoverable for conversion where the defendant's act "was accompanied by fraud, ill will, malice, recklessness, wantonness, oppressiveness, willful disregard of the plaintiff's rights, or other circumstances tending to aggravate the injury."  18 Am. Jur. 2d Conversion 114, at 227-28 (1985) (footnotes omitted).  The bank contends that Air Nauru was reckless and wanton and willfully disregarded the bank's rights because it did not respond when contacted about the money and because it did not submit an answer after being served with the complaint and summons in this suit.  I cannot agree.  Assuming that punitive damages could be awarded in a proper case of conversion, mere failure to respond to an inquiry, or to answer a complaint is not a circumstance entitling a plaintiff to punitive damages.  To follow the bank's line of reasoning would entitle every tort plaintiff with a default judgment to punitive damages.  That is not a desirable result.

     The bank is therefore entitled to judgment for $5,000, with nine per cent interest a year thereon

[7 FSM Intrm. 654]

from June 12, 1996 until satisfied, and $25.29 for cost of service.