#6857 - Chase Manhattan Bank V. Israel British Bank - Restitution of Unjust Enrichment BCL

Chase Manhattan Bank v. Israel British Bank

Facts

This action concerns a sum of money paid by mistake. In July 1974 the plaintiff, Chase Manhattan Bank N.A., and the defendant, Israel-British Bank (London) Ltd., were carrying on business as bankers, the plaintiff in New York and the defendant in London. On or before July 2 an Italian bank instructed the plaintiff to pay U.S. $2,000,687.50 to Mellon Bank International, another bank in New York, for the defendant's account. The plaintiff duly made that payment through the New York clearing house system on July 3. Later on the same day, July 3, the plaintiff made a further payment of the same amount, also through the clearing system, to the same recipient, Mellon Bank International, again for the account of the defendant. This second payment purported to be made on the instructions of a bank in Hong Kong. But no such instructions had been given, and the second payment was a pure mistake. Its original cause was a clerical error made by a servant of the plaintiff earlier on July 3.

Winding up proceedings by the Defendant Bank: On August 2, 1974, the defendant presented a petition to the English High Court, praying to be wound up by the court. A winding-up order was made on the defendant's petition on December 2, 1974. Meanwhile, on September 23, the defendant had also filed its bankruptcy petition in New York. On August 3, 1976, with the leave of the Companies Court, the plaintiff began the present action, in which it seeks to trace and to recover in equity the sum which it paid by mistake in 1974.

Defendant’s knowledge: In the result, I am satisfied on a balance of probabilities that on July 5, 1974, the defendant learned of the mistaken payment, and either knew it was a mistake, or was put fully on inquiry by facts that should have indicated it might be a mistake.

Issues

Whether the plaintiff is entitled in equity to trace the mistaken payment and to recover what now properly represents the money.

Holding

Court relied on the US decision in In re Berry (1906) 147 Fed. 208:

“On no possible theory could the retention of the money by Berry & Co. be justified; it was paid to them and received by them under mistake, both parties believing that Raborg & Manice owed the amount. If $1,500 had been placed in a package by Raborg & Manice and delivered to a messenger with instructions to deposit it in their bank, and the messenger, by mistake, had delivered it to Berry & Co., it will hardly be pretended that the latter would acquire any title to the money, and yet the actual transaction in legal effect gave them no better right. It is urged that to compel restitution now will work injustice to the general creditors of the bankrupts, but this contention loses sight of the fact that the money in dispute never belonged to the bankrupts, and their creditors, upon broad principles of equity, have no more right to it than if the transaction of November 25 had never taken place. If the trustees succeed on this appeal the creditors will receive $1,500, the equitable title to which was never in the bankrupts.

When the money was paid under a plain mistake of fact equity impressed upon it a constructive trust which followed it through the bank and into the hand of the trustees.”

In my opinion, on the evidence that I have heard, to which I shall have to return later, the foregoing passages correctly represent the law of the State of New York. I believe they are also in accord with the general principles of equity as applied in England, and in the absence of direct English authority I should wish to follow them.

Argument: Mr. Stubbs says that there is no equitable right to trace property unless some initial fiduciary relationship exists. Mr. Stubbs says further that the essential fiduciary relationship must initially arise from some consensual arrangement.

Rejected: This fourth point shows that the fund to be traced need not (as was the case in In re Diplock itself) have been the subject of fiduciary obligations before it got into the wrong...