If stolen money is paid into a bank account, is the wronged party able to claim the money back from the bank? In a recent Supreme Court of Appeal matter, the court was faced with this issue.
Ms M worked for Lombard Insurance. A client was due an insurance payout of almost R 3 000 000 and Ms M forged a letter, which appeared to come from the client, requesting that Lombard Insurance pay the amount due into two nominated bank accounts. Lombard Insurance later discovered that the bank accounts were, in fact, held by Ms M.
Ms M’s bank accounts, which were held at two separate banks, were both in overdraft and reflected a debit balance. The Lombard Insurance payments extinguished her indebtedness to the banks and created a favourable credit balance in these accounts. In other words, the banks used the Lombard Insurance money to pay themselves and to settle the overdrafts.
When Lombard Insurance became aware of the fraud, it tried to recover the money from the banks on the basis that the banks had been unjustifiable enriched. Unjustified enrichment occurs when someone has transferred money or other property to a third party and there is no reason which justifies that third party retaining those assets.
The banks raised an old legal principle as a defence: where a third party receives money in settlement of a debt which is owed to it, there is no unjustifably enrichment. The Supreme Court agreed with the banks – the accounts were in debit and the payment of the money into the accounts constituted an instruction from Mrs M whereby the banks were entitled to off-set the debit balance.
Interestingly, the court also took the view that, because the bank did not know that the money was ‘bad money’, its receipt of the money was valid. The Court said that the situation would have been different if both parties had been aware that the money was illegally obtained – only then would Lombard Insurance have been entitled to claim against the two banks for the return of its money.
Unfortunately, Lombard Insurance only had recourse against Ms M, the wrongdoer, in her personal capacity.
A bank is a place where they will lend you money if you can prove that you don’t need it.
– Margaret Case Harriman