Chase Manhattan Bank v.

Israel British Bank (1981)

Facts
 Chase Manhattan, the plaintiff, was instructed to pay $2m to the Israel-British Bank, the
defendant, but it paid the sum twice by mistake.
 The Israel-British Bank subsequently became insolvent and entered into liquidation after the
managing director was convicted of embezzling from the bank.
 Chase Manhattan wished to claim back the money which it had mistakenly paid.
 However, because the Israel-British Bank was now insolvent, rather than make a claim for a
dividend in the liquidation, where it would have to compete with all of the other creditors of
the insolvent bank, Chase Manhattan sought to argue that the entire sums were held on trust
and so should be returned as part of a proprietary claim to the money.
 The Israel-British bank had known about the mistake on the part of Chase Manhattan before
it went into liquidation.
Issue
Whether the plaintiff is entitled in equity to trace the mistaken payment and to recover what now
properly represents the money.
Holding
In this case, the court held that when money is paid under a mistake, the recipient becomes a
trustee. The payer retains an equitable property interest in the money, and the conscience of the
recipient is bound by a fiduciary duty to respect this proprietary right. Essentially, the recipient
must treat the funds as if held in trust for the payer.
Goulding J particularly said the following;
“In the circumstances, however, the depositors retained an equitable property in the funds they
parted with, and fiduciary relationships arose between them and the directors. In the same way, I
would suppose, a person who pays money to another under a factual mistake retains an equitable
property in it and the conscience of that other is subjected to a fiduciary duty to respect his
proprietary right.”