Banque Worms v BankAmerica International: Difference between revisions

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Banque Worms v BankAmerica International (view source)

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{{a|casenote|}}This case, fonldy known to [[restitution]] fans and other obstreporous rascals of the financial services industry as ''[[Banque Worms]]'' involved a [[revolving credit facility]] between one Spedley and the Banque. In 1989, Banque Worms informed Spedley that it would not be renewing the [[revolver]] and demanded payment of the outstanding balance on April 10, 1989.
{{a|casenote|}}This case, fonldy known to [[restitution]] fans and other obstreporous rascals of the financial services industry as ''[[Banque Worms]]'' involved a [[revolving credit facility]] between one Spedley and the Banque.  
 
===Facts===
In 1989, Banque Worms informed Spedley that it would not be renewing the [[revolver]] and demanded payment of the outstanding balance on April 10, 1989.


On 10 April 1989, at 12:36 am,<ref>Yes, I was thinking that too. These dudes work crazy hours. A mistake was bound to happen.</ref> Spedley instructed its bank, SPI, to wire the total amount due to the Banque at its BankAmerica account. By 3:37 am the same day – not three hours later – Spedley had a change of heart and instructed SPI to stop payment to Banque Worms and instead make a payment in the same amount to National Westminster Bank USA.”
On 10 April 1989, at 12:36 am,<ref>Yes, I was thinking that too. These dudes work crazy hours. A mistake was bound to happen.</ref> Spedley instructed its bank, SPI, to wire the total amount due to the Banque at its BankAmerica account. By 3:37 am the same day – not three hours later – Spedley had a change of heart and instructed SPI to stop payment to Banque Worms and instead make a payment in the same amount to National Westminster Bank USA.”


You won’t believe this, but notwithstanding the second instruction SPI went ahead and wired the full amount to BankAmerica. Can you imagine it? About two hours after ''that'' SPI informed BankAmerica of the mistake and asked for the money back. ''Assuming that BankAmerica would send the money back'',<ref>Don’t ''arseyoume'', kids: it makes an “arse” out of “you” and “me”. Actually, given that its first instruction was in breach of mandate, it was obliged to send the money to NatWest whether it got it back or not.</ref> SPI then sent the exact same amount to National Westminster Bank USA as well.
You won’t believe this, but notwithstanding the second instruction SPI went ahead and wired the full amount to BankAmerica. Can you imagine it? About two hours after ''that'' SPI informed BankAmerica of the mistake and asked for the money back. ''Assuming that BankAmerica would send the money back'',<ref>Don’t ''arseyoume'', kids: it makes an “arse” out of “you” and “me”. Actually, given that its first instruction was in breach of mandate, it was obliged to send the money to NatWest whether it got it back or not.</ref> SPI then sent the exact same amount to National Westminster Bank USA as well.
===Issue===
Did Banque Worms have to pay the money back?


Banque Worms refused to return the money and invoked the famous [[discharge-for-value defense]]: it was a creditor with a right to the payment from Spedley.  
Banque Worms did not want to. It invoked the famous [[discharge-for-value defense]]: it was, it said, a creditor with a right to the payment from Spedley, so since it hadn’t misrepresented to anyone, and had no knowledge of the fact that there had been a mistake, it said it didn’t have to.


SPI argued that it was entitled to a return of the payment under restitutionary principles unless Banque Worms had relied on the payment to its detriment, and it hadn’t. The New York Court of Appeals considered that section 14 of the ''Restatement of the Law of Restitution''’s description of the [[discharge-for-value defense]] as applying in the case. That provides:
SPI argued that it was entitled to a return of the payment under [[restitution]]ary principles unless Banque Worms had relied on the payment to its detriment, and it hadn’t.  
===Decision===
Banque Worms got to keep the money.
 
The New York Court of Appeals considered that section 14 of the ''Restatement of the Law of Restitution''’s description of the [[discharge-for-value defense]] as applying in the case. That provides:
{{quote|''{{Restatement of Restitution Section 14}}''}}
{{quote|''{{Restatement of Restitution Section 14}}''}}
Here Banque was owed the money, it got paid it, and wasn’t at fault or to be blamed for SPI’s failure to read its own email (or whatever it was banks used for messages in 1989. It was swayed by the perceived need for certainty in the then-emerging business of electronic funds transfer.
===The JC says===
The decision is right — Banque Worms should be able to keep the money — but for the wrong reasons, and these have had a ghastly knock-on effect for poor old Citibank some 30 years later.
This case is not about restitution at all: it is about the simple law of ''[[contract]]''. Spedley had an obligation to pay, ''on that day'', and its agent discharged that obligation. Spedley might have a complaint against its agent for exceeding its mandate, but this is hardly Banque Worms’ problem. Unlike a crime or a tort, there is no ''mens rea'' associated with contractual performance. It doesn’t matter whether I intended to perform the contract; if I — or my agent — did, that is the end of it. There is no equity in denying Banque’s right to keep money I paid it, that I was due to pay it, but that I simply didn’t mean to pay. There is no need to resort even to Banque’s right of [[banker’s set-off]] let alone the arcane fiddly area of [[restitution]], albeit that the law does appear to have made an intervention here.
But the extension of restitutionary principles to an environment where there is a governing contract — a place where restitutionary angels ''should'' fear to tread —while of no moment in [[Banque Worms]], created a total shitstorm in {{casenote|Citigroup|Brigade Capital Management}}, since in that case the debt purportedly discharged ''was not even due'' at the time of the mistaken payment.


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