Bank of Naperville v. Catalano
86 Ill. App. 3d 1005, 408 N.E.2d 441, 30 U.C.C. Rep. Serv. (West) 1067 (1980)
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Rule of Law:
A party that pays money to another under a mistake of fact may recover that money through restitution, even if the payor was negligent in making the payment.
Facts:
- Robert and Beth J. Catalano maintained a banking relationship with the Bank of Naperville, which included a checking account and a commercial loan.
- The Catalanos' relationship with the bank was troubled; Mr. Catalano alleged prior bank errors, and the bank president considered their loan a 'troublesome credit.'
- As of August 3, 1977, the Catalanos' loan was 30 days past due and their checking account was overdrawn.
- On that day, the bank's president, Mr. Stearns, decided to close the Catalanos' accounts and pay off their debts to the bank.
- On August 4, 1977, Robert Catalano went to the bank, where Mr. Stearns informed him that the bank was using his savings account to pay the loan and overdraft, and tendered him a cashier's check for the remaining balance of $1,825.45.
- Mr. Catalano was told the money came from his own funds on deposit at the bank.
- After a confrontation with Stearns, Mr. Catalano accepted and cashed the cashier's check.
- The bank subsequently discovered that the Catalanos did not have a savings account and that the funds had been inadvertently taken from the savings account of an unrelated customer also named Robert Catalano.
Procedural Posture:
- The Bank of Naperville (plaintiff) sued Robert and Beth J. Catalano (defendants) in the Circuit Court of Du Page County, a trial court, seeking restitution for funds paid by mistake.
- The trial court entered a judgment for the Bank of Naperville, ordering the Catalanos to make restitution.
- The trial court denied the Bank of Naperville's separate claim for interest and attorney’s fees.
- The Catalanos (appellants) appealed the trial court's restitution order to the Illinois Appellate Court, Second District.
- The Bank of Naperville (appellee) filed a cross-appeal challenging the trial court's denial of its claim for interest and attorney’s fees.
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Issue:
Does a bank that negligently applies funds from a third party's account to the obligations of a customer, under the mistaken belief the funds belonged to the customer, have a right to restitution from that customer?
Opinions:
Majority - Mr. JUSTICE Lindberg
Yes, a bank that negligently pays money to a customer from a third party's account under a mistake of fact has a right to restitution. The general rule is that money paid under a mistake of fact is recoverable, and the payor's negligence does not preclude recovery. The exception for banks that mistakenly honor checks for customers with insufficient funds does not apply here, as this case does not involve a third-party holder of a negotiable instrument. Mr. Catalano was the customer himself, who was told the funds were supposedly his own. The bank's misidentification of its depositor was a mistake of fact entitling it to restitution. The Catalanos' defense of change of position fails because their alleged failure to bring a separate, unrelated lawsuit against the bank is not a detrimental change of position that would make restitution inequitable.
Analysis:
This decision reinforces the equitable principle of restitution to prevent unjust enrichment, even in cases of payor negligence. It clarifies the scope of exceptions to this rule, distinguishing between payments made to the debtor-customer directly and payments made to innocent third-party holders of negotiable instruments. The ruling narrowly construes the 'change of position' defense, requiring a tangible, detrimental reliance on the mistaken payment, not merely a tactical decision to forbear from unrelated litigation. This strengthens the hand of parties seeking to recover mistaken payments and sets a high bar for recipients wishing to retain such windfalls.
