The Voluntary Payment Doctrine
The voluntary payment doctrine is a common law doctrine that “bars recovery of payments voluntarily made with full knowledge of the facts, and in the absence of fraud or mistake of material fact or law.” Dillon v. U-A Columbia Cablevision of Westchester, Inc., 100 N.Y.2d 525, 526 (2003) (citation omitted); see also Utica Mut. Ins. Co. v. American Re-Insurance Co., 218 A.D.3d 1283, 1285 (4th Dept. 2023); Hedley’s, Inc. v. Airwaves Global Logistics, LLC., 130 A.D.3d 872, 873 (2d Dept. 2015). “There is a presumption that a payment is voluntary.” ECI Financial Corp. v. Resurrection Temple of Our Lord, Inc., 213 A.D.3d 735, 736 (2d Dept. 2023) (citation and internal quotation marks omitted). If a written protest is made at the time of payment, a voluntary payment doctrine defense will not lie. Overbay, LLC v. Berkman, Henoch, Peterson, Peddy & Fenchel, P.C., 185 A.D.3d 707, 709 (2d Dept. 2020). Thus, the “voluntary payment doctrine is inapplicable where the payment is made under an appropriate protest or the circumstances attending the payment demonstrate the payor's intention to preserve the right to dispute the legality of the payees demand” or where “by coercion or duress, the payee deprives the payor of a choice of whether to make the payment”. Jenoure v. Body Solutions Plus, LLC of Westbury, 29 Misc. 3d 84, 86 (N.Y. App. Term 2010).
“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.” DRMAK Realty LLC v. Progressive Credit Union, 133 A.D.3d 401, 403 (1st Dept. 2015) (citation and internal quotation marks omitted).
The voluntary payment doctrine was addressed by the First Department over 120 years ago in Lesster v. Mayor, 33 A.D. 350 (1898). There, the plaintiff mistakenly continued to pay property taxes on a parcel of land he owned because he did not know the property had been condemned by the City of New York for road widening purposes. The Lesster court recognized that “if a party, with full knowledge of all the facts, voluntarily pays money in satisfaction of a demand made upon him, You cannot afterwards allege such payment to have been made unjustly demanded, and recover back the money.” Id. at 355 (citation and internal quotation marks omitted). The Court continued: “To constitute a voluntary payment, it must appear that the money was paid with knowledge of the facts which showed no liability to pay, and even with knowledge that it ought not to be paid.” Id (citation and internal quotation marks omitted). In directing the return of the mistakenly made tax payments, the Lesster Court stated that because “the money was received by the city under no demand or claim of right, nor was it paid by the plaintiff with knowledge of the fact that the title to the property before the tax was confirmed had passed to the city … such payment cannot be held to be voluntary, but, being one made through inadvertence or mistake, [and, therefore,] should, in consonance with what is just and right, be returned to the plaintiff.” Id.
The plaintiff in Hedley’s, supra, was an exporter of antiques that agreed to export artwork valued at $240,000 to a consignee in England. The parties’ contract contained a limitation of liability in the amount of $40,000. When the artwork arrived in London, it was seized by customs. Because the antiques never reached the consignee, the plaintiff paid the consignee the sum of $240,000. The Plaintiff also recovered $40,000 from its insurance carrier. Plaintiff then sued the defendant freight forwarder for, inter alia, $240,000. The defendant moved for summary judgment dismissing the complaint based on the voluntary payment doctrine. The motion court denied the motion but the Second Department reversed. In applying the voluntary payment doctrine, the Court stated that the “defendant established its prima facie entitlement to judgment as a matter of law through the submission of, among other things, a copy of the contract between the plaintiff and the consignee, which included the limitation of liability provision that capped the plaintiff's liability to the consignee at $40,000 [which] demonstrated, prima facie, that the plaintiff's payment to the consignee of anything more than $40,000 was voluntary.” Hedley’s, 130 A.D.3d at 874-75 (citations omitted).
Against this backdrop, we discuss 5 Beekman Property Owner, LLC v. Henick-Lane, Inc., decided on October 6, 2026, by the First Department. The plaintiff in 5 Beekman purchased an HVAC system from the defendant that leaked and caused damage to the plaintiff’s property. The defendant’s insurer mistakenly believed that the parties’ ongoing settlement discussions resulted in a full settlement. Accordingly, it made an $850,000 payment to the plaintiff to cover the costs of the plaintiff’s mitigation and other remedial efforts. The motion court ordered that the funds be returned to the defendant, with interest.
On the plaintiff’s appeal, the First Department affirmed, finding the voluntary payment doctrine inapplicable based on the defendant’s mistake. In so doing, the Court stated:
The voluntary payment doctrine, which bars recovery of payments voluntarily made with full knowledge of the facts, and in the absence of fraud or mistake of material fact or law, does not apply on these facts. Under the doctrine, the payor — here, defendant's insurer — must object or reserve rights at the time of payment in order to avoid the effect of the doctrine. The insurer made such a reservation here, noting on the check that it was a "Settlement Payment for" defendant. However, there was no such settlement, and therefore, no voluntary payment, as the payment was based on the insurer's mistake. [Citations and internal quotation marks omitted.]
Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.
This article is for informational purposes and is not intended to be and should not be taken as legal advice.
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