Bank error in your favor – can you keep it?
- Peter Schneider
- Mar 30
- 4 min read
Updated: Mar 31
It is pretty common that someone mistakenly pays someone else money not owed them. Usually this hits the news when a bank suddenly deposits millions in an account by accident but it happens all the time in ways that don't.
Usually people have a sixth sense to report it and not spend it, but not always.
We recently had a client consultation involving a variation on something that occasionally hits the news - money mistakenly hit their bank account, they spent it, now the company that mistakenly deposited the money wants it back and hired a collection agency to go after it. This put them in a very difficult position.
Take the case of Robert and Tiffany Williams. BB&T Bank mistakenly deposited $120,000 into their account, and before BB&T could take the money back, $107,416 had been spent. BB&T reached out to the Williams and they initially agreed to repay the money, but then went radio silent. Soon BB&T referred the matter to the state police. Eventually they were charged with theft of property and receiving stolen property.
Eventually they got out of it by agreeing to perform 100 hours of community service - and repaying the $107,416. This could happen in Washington State because theft is defined in RCW 9A.56.020 as:
(1) "Theft" means: (a) To wrongfully obtain or exert unauthorized control over the property or services of another or the value thereof, with intent to deprive him or her of such property or services; or (b) By color or aid of deception to obtain control over the property or services of another or the value thereof, with intent to deprive him or her of such property or services; or (c) To appropriate lost or misdelivered property or services of another, or the value thereof, with intent to deprive him or her of such property or services. (2) In any prosecution for theft, it shall be a sufficient defense that (a) The property or service was appropriated openly and avowedly under a claim of title made in good faith, even though the claim be untenable
"Appropriate" means to take for one's own use, so taking for ones own use lost or misdelivered money belonging to someone else opens one up to a theft charge in Washington State.
The defense to the theft charge is really only going to work in one of two situations - the money is so small compared to what you already had in your bank account that who would notice it, or you were already expecting a similar payment from the source of the money. This is often called a "discharge for value" defense - they already owed you money and although it turns out they didn't intend to pay you, they did:
We believe this case presents a typical "discharge for value" scenario: A payor makes a payment to a creditor that discharges a debt, in full or in part. Later, the payor alleges the payment should not have been made to the creditor and tries to recover it under principles of unjust enrichment. Historically, courts do not allow such transactions to be unwound. National Bank v. FCC Equipment Financing, Inc., 801 N.W.2d 17, 19 (Iowa Ct. App. 2011)
This is a fairly narrow defense however. In the In re Citibank case, the people mistakenly paid were owed the money - three years after payment was made. The 2nd circuit grabbed the money back.
When people receive money by mistake, the law usually requires them to give it back. This commonsense rule allows transferors to reclaim property that rightfully belongs to them- whether misdirected funds, an accidental overpayment, or a credit to the wrong bank account. An exception to the general rule can sometimes protect a recipient who was owed the mistakenly paid money. Under this narrow equitable defense, called "discharge for value," a creditor who receives a payment in discharge of a debt he is owed can defeat restitution by invoking his own competing claim to the disputed funds. In re Citibank, No. 21-487, (2d Cir. Sep. 15, 2022).
If you are mistakenly paid money, be it from a bank, your employer, or anyone else, and you know or should have known, or come to know, it wasn't meant for you, don't spend it! Let them know about the issue and even if they initially claim no mistake was made, don't spend it!
More likely than not a collection agency or the entity themselves will come calling and if they feel you aren't playing ball with returning it, they may well report the problem to the police and you could be civilly sued and prosecuted for theft.
The "I already spent it" defense probably won't work. The bank can go to court asking to take whatever it was spent on, and if that doesn't work, reduce it to a judgment.
The thoughts, opinions and musings of this blog are those of Peter Schneider, a consumer advocate attorney at Northwest Debt Resolution, LLC. They are just that, his thoughts, opinions and musings and should be treated as such. They are not legal advice. Do you have more questions? We would be happy to answer your questions:
Bankruptcy and debt questions:
Peter Schneider
206-800-6000
Robocalls and Telephone Consumer Protection Act questions:
Nathen Barton
206-800-6000
Fair Debt Collection Practices Act (FDCPA) questions:
Peter Schneider
206-800-6000
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