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the lender [sanwa] delivers a financing check to its customer [alpha] but the check is payable to the prospective supplier [finchill]. Supplier, rather than customer, is made payee to insure that customer doesn't walk off with the money without acquiring the asset.

finchill's act of endorsing the check over to Alpha would seem wrong to the business community because it defeats the purpose of designating the prospective supplier as payee

whatever the proper legal classification of that wrong, can finchill be taken off the hook by characterizing its act of misusing the check as unjust enrichment and that very act as change of position?

Charles Mitchell wrote:

It has been suggested by some, e.g. Gareth Jones, that the change of position defence should be available in some circumstances to a defendant sued for conversion. Sanwa v Finchill comes close to saying this, but it doesn't quite get there.

The facts went like this. Sanwa was told by Alpha - untruthfully - that Alpha wished to buy goods from Finchill. Sanwa agreed to finance this transaction by way of a lease agreement. At Alpha's request, Finchill sent an invoice for the goods to Sanwa. Sanwa then issued a cheque to Finchill and gave it to Alpha for delivery to Finchill. However, Alpha then told Finchill - again untruthfully - that it had been able to obtain the goods elsewhere, that it did not wish to buy the goods from Finchill after all, and that it wished Finchill to endorse the cheque over to Alpha. Finchill complied with this request.

Thereafter, Alpha paid Sanwa some money under the terms of the lease agreement, but it eventually came to light that Alpha had never bought the goods from Finchill, and that the whole business was a fraud by Alpha designed to extract money out of Sanwa. Finchill was not implicated in this fraud, but was, like Sanwa, an innocent victim of Alpha's fraudulent misrepresentations.

Because Alpha and Finchill never entered a contract for the purchase of the goods, there was in the view of the NSWCA no substratum on which a contractual relationship between Sanwa and Finchill could be said to exist. However, the NSWCA considered that Alpha could recover the amount of the cheque from Finchill, either in an action for conversion or in an action for unjust enrichment (apparently on the ground of mistake; the 'enrichment' received by Finchill was title to the cheque which it endorsed over to Alpha).

The question then arose, whether Finchill had any defences to either claim, and Davies AJA said this:

'In my opinion, the payments which Sanwa ... received from Alpha must be taken into account whether or not the cause of action be looked at as damages for conversion of the cheques or recoupment of unjust enrichment on the part of Finchill. In either event, there was a loose circle of moneys flowing from [Sanwa] to Finchill to Alpha and back to [Sanwa]. Insofar as restitution is concerned, it would be unjust not to take these payments into account. Insofar as damages are concerned, the money received reduced the amount of [Sanwa's] loss.'

This decision does not quite say that because Finchill was disenriched when it endorsed the cheque to Alpha it had changed its position and should be entitled to rely on this fact in defence to the conversion and UE claims, since Davies AJA held that Finchill was entitled to a defence only insofar as the value inherent in the cheques found its way back into Sanwa's hands. However, I doubt whether that can really be correct in principle, at least so far as the change of position defence to the UE claim is concerned, although it obviously makes more sense when presented as a reason for reducing the tort damages payable to Sanwa, to compensate Sanwa for its loss.