Legal-Ease: Risks of mistaken payments of money


By Lee R. Schroeder - Guest Columnist



In August 2020, a customer of Citibank owed hundreds of millions of dollars to various creditors. The Citibank customer asked Citibank to wire $7.8 million of the customer’s money to satisfy interest payments owed to those creditors.

However, instead of only paying the $7.8 million interest payments to the creditors, Citibank accidentally paid $900 million to the creditors. Although some creditors repaid the money, creditors who received $500 Million of extra money refused to return that money.

Last week, a federal judge ruled in favor of those creditors, allowing them to keep the $500 million, because the creditors were actually owed the money toward repayment of principal in addition to interest.

A more practical example might be a monthly mortgage payment that I have as a part of 30-year loan/mortgage for my house. In one month, I may accidentally make two monthly payments instead of one payment. I only intended to pay one payment, but my bank is owed (not immediately but eventually) the money so my bank would probably not be required to return the extra monthly installment payment that I accidentally made, even if I ask for that overpayment back immediately after my mistake.

Seldom is someone overpaid or paid by accident. However, today’s world includes more and more electronic bill payments and automated transfers of money. In contrast to making ATM withdrawals, electronic bill payments push money to another account. So, to remedy a wrong payment, that mistaken payment must be “pushed back” to the original account. And, electronic payments lack any explanations, in contrast to physical checks where explanations can be included on the memorandum lines of those checks. For these reasons, it is more likely than ever that someone may be wrongly overpaid and be able to keep that extra money.

As a matter of fairness, unless I identify a payment as a gift, people whom I overpay or pay by accident should not be allowed to keep the money I send to them by accident. For example, if I accidentally pay my neighbor for removing snow from my driveway, I can probably get my money back if the neighbor never removed the snow.

However, because electronic payments do not include written explanations, if I owe the neighbor money for something else (as in the Citibank and mortgage examples explained above) and I make an unexplained payment to my neighbor, my neighbor may be able to keep the money.

Independently, if my neighbor reasonably expected that I wanted him to keep the money and my neighbor actually buys something with the money, the neighbor may not have to return my money. For instance, if my neighbor also mows my grass in the summer, my neighbor may think that the payment is an advance toward summer mowing. If my neighbor uses the money to buy new lawnmower blades before I ask for the money back, my neighbor would likely be able to keep the money, albeit giving me credit toward this summer’s lawnmowing bill.

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By Lee R. Schroeder

Guest Columnist

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.

Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.

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