Unforeseen windfall? Mistake in bank credit

You may have heard of news reports where a bank mistakenly credits a depositor’s account with a large sum of money, making them unexpectedly “wealthy.”

In some cases, these depositors, overwhelmed with excitement, may hastily spend the funds, only to later receive notification from their bank that the money was erroneously credited, and must now be returned.

Just recently, I heard of someone in our circle whose bank account was mistakenly credited with P15 million… and yet another who was mistakenly credited more than P500 million!

In the case of the former, the bank did not even notice until the account holder informed them of the mistake. Then, grateful for being informed, they took back the  P15 million and told the account holder that she could keep the interest. (The P500 million is a longer story and still being worked out as I understand it. Perhaps we’ll save that for another day.)

READ: Couple spends over P5M accidentally deposited into their account, charged with theft

Situations such as these would then prompt the question, what happens when the bank wants their money back?

Below are two cases decided by the Supreme Court, with different outcomes.

Ms. Cheah was a depositor of PNB and she agreed to accommodate a certain Ms. Tuazon’s request to have her Bank of America check in the amount of $300,000 cleared and encashed through Ms. Cheah’s dollar account with PNB for a fee of 2.5 percent. (PNB v. Sps. Cheah Chee Chong and Ofelia Camacho Cheah, GR 170865 and 170892)

Ms. Cheah deposited the BOA check to her account on Nov 4, 1992 and, on Nov 16, 1992, PNB advised her that the check had cleared and was credited to her account. She withdrew the money and gave it to Ms. Tuazon.

A few days later, PNB was notified that the BOA check was dishonored for being drawn against insufficient funds. It contacted Ms. Cheah to demand the return of the money who tried to retrieve it from Ms. Tuazon who could not return it as she had already disbursed the money to others.

Negotiations between PNB and Ms. Cheah for the return of the money did not lead to any agreement which prompted the bank to file a complaint in court for the return of the money.

The trial court ruled in favor of the bank and ordered Ms. Cheah to return the money. This was reversed on appeal where the court held that both the depositor and the bank acted negligently such that they must share equally in the loss.

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The Supreme Court affirmed the decision of the Court of Appeals.

The high court held that payment of the amounts of checks without previously clearing them with the drawee bank, especially so where it is a foreign bank and the amount involved was large, is contrary to normal or ordinary banking practice. Before a check shall have been cleared for deposit, the collecting bank can only ‘assume’ at its own risk that the check would be cleared and paid out.

In this case, PNB’s disregard of its preventive and protective measure against the possibility of being victimized by bad checks had brought upon itself the injury of losing a significant amount of money. Moreover, the diligence required of banks “is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected.”

The principle of Solutio Indebiti laid down in Art. 2154 of the Civil Code was found not to be applicable as the indispensable requisites of which are:

a. that he who paid was not under obligation to do so, and
b. that the payment was made by reason of an essential mistake of fact

A mistake of fact must be something excusable which requires the exercise of prudence. No recovery is due if the mistake done is one of gross negligence.

On the other hand, the court ruled that Ms. Cheah was guilty of contributory negligence as she failed to observe caution in giving full trust in accommodating a stranger, as it was found that Ms. Tuazon was not personally known to her but just referred to her, leading to her being swindled. Moreover, the clearing of the check before the 15 day banking period should have put her on guard as to the regularity of the transaction.

As such, the depositor and the bank must share the loss equally.

In another case, the outcome was different. An account holder deposited a BPI check into his Union Bank account amounting to P420,000, drawn against the account of Angli Lumber & Hardware.

The amount was credited to the account of the depositor, who then withdrew the amount. Two days from the deposit of the check, the BPI check was returned to Union Bank dishonored, on the ground that the account against which it was drawn was closed. (Yon Mitori International Industries v. Union Bank of the Philippines, GR 225538, Oct 14, 2020)

Union Bank immediately called the depositor to recover the money mistakenly credited as released due to a technical error, but the depositor refused to return it. It was discovered that the depositor had previously deposited five BPI checks drawn against Angli Lumber from the same BPI account, and all these previous checks were dishonored.

Union Bank filed a case to collect the amount.

The trial court ordered the depositor to pay Union Bank the money mistakenly credited plus interest, attorney’s fees and cost of suit. This was affirmed by the Court of Appeals but it modified the award to lower the interest to 6 percent per annum and to remove the award of attorney’s fees and cost of suit.

The Supreme Court affirmed the ruling that the depositor must return to Union Bank the amount withdrawn on the principle of unjust enrichment.

The depositor in this case argued that it was the bank that was negligent and as a result the principle of solutio indebiti was inapplicable and that since the bank caused the loss it should be barred from recovering the damages it was seeking.

The court explained that unjust enrichment claims were warranted when one party benefits from the efforts or obligations of others and it was shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully.

The claimant must prove that another party knowingly received something of value to which he was not entitled and that the state of affairs are such that it would be unjust for the person to keep the benefit. To be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request.

The court found that the depositor withdrew and utilized the proceeds of the BPI check knowing that he was not entitled to the proceeds. This was due to the fact that he previously deposited several checks from the same account, which were dishonored for the reason that the account had been closed.

The difference in the two is that in the Union Bank case, the depositor failed to establish that the bank acted with gross negligence. It was also shown that the depositor knew that the check would be dishonored, as the checks from the same account were dishonored by the bank for the reason that the account was already closed. Accordingly, the depositor could not have expected that the check would be cleared.

While Union Bank concedes that a technical error in its own system allowed the depositor to withdraw the proceeds of the BPI check before clearance, this error is not the same as the blatant violation of internal procedure committed by the bank in the case of PNB v. Cheah.

From the foregoing cases decided by our Supreme Court, we can see that the principle of Unjust Enrichment under Art. 22 and Solutio Indebiti under Art. 2154 both of the of the Civil Code are relevant in resolving such disputes.

Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. Moreover, if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

The obligations above are tempered by Art. 2179 of the Civil Code which provides that when one’s own negligence was the immediate and proximate cause of its injury, it cannot recover damages. If there was contributory negligence, the courts shall mitigate the damages to be awarded. (Art. 2179, Civil Code)

(The author, Atty. John Philip C. Siao, is a practicing lawyer and founding Partner of Tiongco Siao Bello & Associates Law Offices, an Arbitrator of the Construction Industry Arbitration Commission of the Philippines, and teaches law at the De La Salle University Tañada-Diokno School of Law. He may be contacted at [email protected]. The views expressed in this article belong to the author alone.)