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The Voluntary Payment Doctrine Strikes Again
The voluntary payment doctrine, which supposedly bars a party from recovering payments made erroneously but voluntarily, has reared its head once again in the real estate context, this time in Drmak Realty, LLC v. Progressive Credit Union (NYLJ 11/6/15, p. 22, col. 1). The court in Drmak did little to clarify the rationale for or scope of this peculiar doctrine (For an earlier discussion, see Stewart E. Sterk, When Does “Voluntary Payment” Preclude Recovery of Overcharges?, NY RELR, November 2014, available at http://bit.ly/1P4UJQ1.)
The Drmak Case
Alexander Klein, a real estate investor, borrowed $3,350,000 from mortgagee, secured by a condominium owned Drmak Realty, an LLC controlled by Klein. The loan carried a 7.5% interest rate, and provided that failure to make a payment within 10 days of the due date would constitute a default. Upon default, Klein would be liable for a late fee of 5% for each overdue payment. The agreement also entitled mortgagee to reasonable attorneys' fees and costs for foreclosing on the mortgage. Klein defaulted several times, prompting two foreclosure actions. After Klein paid the arrears, mortgagee discontinued the first foreclosure action. Klein contended that he was never served in the second action. Ultimately, in 2013, Klein sought to pay off the loan and obtain financing from another lender.
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