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Keywords

plaintiffdefendantnegligenceequitygood faith
negligenceequitycommon law

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Bank of Saipan v. CNG Financial Corp., 380 F.3d 836

Facts

The Bank of Saipan loaned $5 million to a con-artist, Michael Wilson, to purchase subsidiaries from CNG Financial Corp. Wilson, who had no legitimate means to finance the purchase, defaulted on the loan, leading the Bank to sue CNG for the return of the loan proceeds. CNG argued that the Bank had unclean hands due to its negligence in the transaction, while the Bank contended that CNG was aware of Wilson's fraudulent intentions and should return the funds.

The facts more specifically relevant involve the victims of these schemes: the Bank, which loaned money to the con-artist to purchase the subsidiaries of CNG; and CNG, which received the loan proceeds as partial payment for the subsidiaries, which it had to reassume when the con-artist purchaser defaulted.

Issue

Did the Bank's alleged negligence bar its recovery on the claim for money had and received, and did CNG accept the loan proceeds in good faith?

The Bank argues that the money had and received claim, as an action at law, is not subject to the “unclean hands” equitable doctrine.

Rule

In Texas, a claim for money had and received requires the plaintiff to show that the defendant holds money that, in equity and good conscience, belongs to the plaintiff. The doctrine of unclean hands can bar recovery if the plaintiff's conduct is unconscientious or unjust.

Texas follows the ordinary principles of common law for such claims: The question, in an action for money had and received, is to which party does the money, in equity, justice, and law, belong.

Analysis

The court analyzed whether the Bank's actions constituted negligence that would bar its recovery under the unclean hands doctrine. It noted that while the Bank may have acted negligently, this did not automatically preclude recovery, as the jury must weigh the Bank's negligence against CNG's conduct. The court also found that there were genuine questions of fact regarding CNG's good faith in accepting the loan proceeds, which should be determined by a jury.

The evidence cited by CNG against the Bank to support its affirmative defense of unclean hands sounds in negligence.

Conclusion

The court affirmed the dismissal of the fraud claim against CNG but reversed the dismissal of the money had and received claim, remanding it for further proceedings. The court concluded that the issues of unclean hands and good faith acceptance of the loan proceeds required a jury's determination.

In sum, the district court, in granting judgment as a matter of law in favor of CNG for the reasons enumerated supra, got it all right except with respect to its ruling on unclean hands.

Who won?

CNG Financial Corp. prevailed on the fraud claim due to the lack of evidence supporting the Bank's allegations of misrepresentation or fraud by CNG.

CNG does not dispute any of the Bank's basic contentions but instead argues that an action for money had and received, like all equity-oriented actions, carries with it the affirmative defense of “unclean hands.”

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