## Facts

- Robert and Beth Catalano were customers of the Bank of Naperville and maintained various accounts and loans with the bank.
- One of the Catalanos’ loans went into default.
- In response to the default, the bank decided to close the Catalanos’ accounts and to apply available funds to the Catalanos’ outstanding obligations.
- While attempting to locate the Catalanos’ accounts, the bank searched for accounts in the name “Robert Catalano.”
- The bank mistakenly identified a savings account belonging to an unrelated third party who had the same name, “Robert Catalano.”
- Treating the third party’s savings account as if it belonged to the defendants, the bank withdrew funds from that account, applied part of the funds to reduce the Catalanos’ debt to the bank, and delivered to Robert Catalano a cashier’s check representing what the bank believed was the remaining savings-account balance.
- The bank later discovered the error and admitted it had not exercised care in verifying that the savings account belonged to the defendants.
- The bank sued Robert and Beth Catalano seeking restitution of the funds mistakenly taken from the third party’s account and paid out for the Catalanos’ benefit.
- The trial court entered judgment for the bank and ordered restitution; the Catalanos appealed.

## Issues

1. Whether a bank that, under a mistake of fact, pays a customer and reduces the customer’s debt using funds taken from an unrelated third party’s account may recover restitution from the customer, even though the bank’s own negligence caused the mistake.
2. Whether decisions limiting a bank’s ability to recover mistaken payments made in the check-or-note context bar restitution when the bank mistakenly pays out funds belonging to a different depositor with the same name.
3. Whether the defendants’ use of the mistakenly paid funds to satisfy their existing debt constitutes a change of position that makes restitution improper.

## Decision

- The appellate court affirmed the judgment for the bank requiring the Catalanos to make restitution of the mistakenly transferred funds.
- The court applied the general rule that money paid under a mistake of fact is recoverable in restitution when the recipient is not entitled to retain the benefit.
- The court rejected the argument that the bank’s negligence, by itself, defeated recovery.
- The court concluded that the check-or-note “mistaken bank payment” line of cases did not control because the bank’s error involved misidentifying and paying out an unrelated third party’s deposit, not a typical negotiable-instrument payment situation.
- The court also rejected any claim that repayment was inequitable merely because the funds were used to reduce the Catalanos’ preexisting debt; that use reflected the very benefit restitution is designed to reverse.

## Legal Principles

- Money paid under a mistake of fact is generally recoverable in restitution when the recipient has no right to the funds and would be unjustly enriched by keeping them.
- A payor’s negligence in making a mistaken payment does not automatically bar restitution.
- The rule restricting a bank’s ability to reclaim certain mistaken payments in the check-or-note setting is limited and does not prevent restitution where the bank mistakenly withdraws and pays funds belonging to an unrelated third party.
- A recipient’s application of mistakenly received funds to satisfy an existing obligation, without more, does not amount to a detrimental change of position that defeats restitution.

## Conclusion

The Illinois Appellate Court held that the Bank of Naperville could recover in restitution from Robert and Beth Catalano after the bank mistakenly withdrew money from an unrelated depositor’s savings account, applied part of it to the Catalanos’ indebtedness, and paid the remainder to them by cashier’s check; the bank’s lack of care and reliance on check-payment cases did not justify allowing the Catalanos to retain a benefit to which they had no entitlement.


Bank of Naperville v. Catalano, 408 N.E.2d 441 (1980)