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Comment by gzer0 | Hacker News Reader

> Ordinarily, the law would be on Citibank's side here. Under New York law, someone who sends out an erroneous wire transfer—for example, sending a payment to the wrong account—is entitled to get the money back.

> But the law makes an exception when a debtor accidentally wires money to a creditor. In that case, if the creditor doesn't have prior knowledge the payment was a mistake, it's free to treat it as a repayment of the loan.

There's a major UI issue here, no doubt about it.

But, it's important to also point out how bizzare this exception is, how did this even get included as the one and only exception?

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I think the law envisions a case where you owe money to someone, and the due date for repayment is already in the past.

So, if I borrow $1,000 from you and am supposed to pay it back next month, and then the due date arrives, and I accidentally transfer $1,000 to you, then yeah, it makes sense that you should be able to keep the money you are owed, even if it was sent mistakenly. It would be bizarre to demand that the creditor return the money to a debtor who is at risk of stiffing them.

But in this case, the due date for repayment was far in the future, and it makes far less sense for the exception to come into play.

That said, I don't understand why the creditor would want to hold onto the money. If they made a loan, they did so to make money off of interest payments, and if the loan is prepaid, they make less.

EDIT:

I read more about the lawsuit. In most cases, it doesn't make sense for the creditor to want to hold onto the money.

But in this case, the creditors were on bad terms with the debtor and were worried that if they returned the erroneously transferred money, they might never see it paid. So the exception to the law, which seems unnecessary unless the loan is past due, ended up benefiting them, because they got their at-risk loan paid back.

> That said, I don't understand why the creditor would want to hold onto the money. If they made a loan, they did so to make money off of interest payments, and if the loan is prepaid, they make less.

The borrower in this case is in financial decline, so they would not get the loan on those terms day. Imagine if you had a loan, lost your job, and then accidentally repaid the loan. The lender would be breathing a sigh of relief.

> Earlier in the year, as the pandemic was accelerating, Revlon experienced financial difficulties and sought to borrow more money. To do that, Revlon convinced a majority of its previous creditors to allow it to transfer collateral from its old loan to a new one.

> The strong-arm tactic angered the other creditors, who felt that the reduced collateral could leave them holding the bag if Revlon ran out of money. That's more than a theoretical concern: Bloomberg's Matt Levine reports that Revlon's debt is "trading at around 42 cents on the dollar." But under the terms of the loan, the minority lenders didn't have a way to force early repayment.

> If they made a loan, they did so to make money off of interest payments, and if the loan is prepaid, they make less.

The article mentions the creditor's impression of the company soured over time, and further their debt was trading for 42c on the dollar. So they got a nice little >2x return on expected value.

In this case - the creditors all expected it was likely that Revlon would default on the loans and never pay them back in full (let alone interest). And there were active lawsuits between the creditors and Revlon regarding financial maneuvering Revlon was doing around these loans that would make it even less likely.

Creditor doesn't necessarily mean bank lender. If you're Revlon, and I supply you raw materials (like beeswax used in lipstick) with standard 30 days payment terms, I am also considered as your creditor because you owe me money. There is no interest expected, rather this is typical of doing business and how firms expect their suppliers to give them payment terms of 30 days, 60 days, or in many cases I've seen, 6 to 9 months. And yes, in Revlon's creditors' case, or in the case of any business who supplies goods on credit, the pandemic absolutely made you panic over whether you could depend on receiving all the money that is owed to you.

In any case, I doubt this ruling will stand, they are a huge bank and this is a decent chunk of change. They've got their ways to making sure the appeal goes in their favour.

>>> In any case, I doubt this ruling will stand

I think it could easily stand for this specific case.

The loan was supposed to be repaid by 2023 if I read the article correctly.

It's already 2021, the case could very easily drag for another 2 years, then there is no reason to return any money because it was supposed to be paid.

The other party are other banks and hedge funds could can hold the money and can also afford lawyers.

Think about it from the side of the creditor (the person to whom the debt is owed).

The point is, if the creditor is owed a debt, and receives payment for it, and A) He has no reason to think the payment was a mistake at the time he received it, B) He did not falsely induce the debtor to make the payment, then the creditor should not have to worry that the debtor will come to him the next day and say “Uh, that was a mistake, I want the money I owe you back.”

This is not the only class of accidental-but-plausible transactions. Why not just use "reason to believe the payment is valid" directly rather than singling out creditors?

What circumstance do you have in mind in which the person receiving the transaction would A) have reason to believe the payment is valid, B) not be considered a “creditor”?

One could have a reasonable belief that the payment was intended as a gift, in which case the recipient would not necessarily be a "creditor" but there is still no reason for them to believe that the payment was invalid.

Here's the distinction though: $400 out of the $900 million was returned. Thus, it seems like we can't get past your part A) in this case, as hedge funds had enough reason to think the payment was a mistake that they returned it. I doubt the creditors in this case are so heterogeneous such that one creditor has no reason at all to think it was a mistake while another does.

The question the law asks is whether they knew it was a mistake at the time they received it. Not whether anyone later decided to be a nice guy upon learning it was a mistake.

In this case, what happened was, Citibank sent out these payments on August 11. Each creditor received a payment in the exact amount (down to the cent) of what they would be owed if Revlon had actually intended to pay down the debt in full, with interest.

On August 12 they told all the hedge funds “oops, send it back.” Some of them said “Hey, no problem, it happens to the best of us, here you go!”, and returned the money. Some of them said “Uh, we’re not going to do that.” And this latter group are the ones who just won in court.

> But, it's important to also point out how bizzare this exception is, how did this even get included as the one and only exception?

It is question how exactly the law is written. I would not bet on legal details to be exactly right in non-law-expert journal.

Here, a receiver or an errorneous wire transfer is not required to send them back based on the fact that wire transfer was unintentional on the sender side, but is required send them back based on the fact that the receiver do not have valid claim to that money.

If the law in NY has been formulated this way, the 'bizarre exception' would be just natural result of the law and not explicit exception. If a debtor unintentionally sends money to the creditor while the debt is due, then creditor has valid and legal claim on that money.

It seems pretty straightforward and logical if you view the payment as the second payment of a series.

If you look at this sequence of events you can see why it might be problematic:

1) Bob has money, which he lends to Dave. Dave has possession but it's still Bob's money.

2) Dave returns the money to Bob. It's Bob's money and he has possession of his own money.

3) Nobody owes anyone anything and there's no obligation from either Dave or Bob to do anything as any agreement that existed has been fulfilled.

4) Court orders Bob to give Bob's money to Dave.

The action contemplated in point 4 here is a pretty extraordinary remedy. Even though it's Bob's money, and there's no contract or agreement outstanding that obligates him to do anything, and even though Bob has done nothing wrong and is not in breach of any obligation or agreement he's going to be ordered to give money, which is his and he has every right to have, to someone else.

It's pretty easy to see why the legal system might decide that's not something it wants to do.

> 1) Bob has money, which he lends to Dave. Dave has possession but it's still Bob's money.

That's not the way a loan is structured legally. Legally, a loan is a bargained-for exchange (a contract) in which the lender gives the borrower money and the borrower promises to make payments according to a schedule. (Note: It can be more complicated than that.) When the borrower receives the money, it becomes his money. If the borrower doesn't make the payments, then the lender can sue for breach of contract or to foreclose on a security interest if there is one.

> ... there's no contract or agreement outstanding that obligates him to do anything ...

By default, a lender is entitled to receive the stream of payments specified in the loan contract and is not required to accept prepayment if he doesn't want to (e.g., if the lender is receiving interest at 10% and the current rate is 5%, the lender does not have to allow the borrower to pay the principal all at once). Prepayment rules can be modified by the loan contract terms (e.g., imposing a penalty for prepayment) or by statute (e.g., a state law requiring housing mortgages to allow prepayment without penalty after some amount of time).

Broadly, the New York default is a departure from the historical norm, and the debtor/creditor "exception" is a return to it. The historical view is that the error is the payor's; they're the ones that should bear the burden.

There's also a value to finality. Particularly given that we didn't have instant or even next-day transactions when these laws were written, allowing a creditor to move on with their lives once the debt seemed to have been repaid makes sense. And not having an exception would allow debtors to pay their debt and then reconstitute it days later if they changed their mind. Having this rule reduces the prevalence of that and the corresponding costs.

Just from a 30k foot view, the lender has a valid legal claim to that money. If you accidentally paid your mortgage or rent without meaning to, should the lender have an obligation to return it?

Yes they should, but the banks carved out an exemption in the law so they don't have to. Sorry citi

For an unintentional payment, I agree. For an accidental overpayment, an argument could be made that the payer has a legal claim to a refund of the overpaid amount.

If you take out a $200,000 home loan with $200 minimum payments and accidentally make a $2000 payment ($1800 over the required minimum), I can see a request for an $1800 return being legally valid - granted you aren't behind on payments.

If you are behind, I would argue that including the total past-due, whatever is still overpaid, can legally be requested for return. So if you owe 3 payments, a request for $1400 returned would be legally valid.

However, if you are behind on payments, it could also be argued that you've breached trust with the lender and any money they receive from you is now theirs until the balance is $0. This is something that should be explicitly discussed in a loan contract prior to agreement.

Comparing an bank-to-individual loan and a bank-to-bank loan is a bit apples to oranges, but a massive unintentional overpayment can have serious ramifications, and I wouldn't write it off as simply as, "Well, you owe them a grand total of X, and even though you only owe them Y per month and overpaid, you don't get any of what you overpaid back".

> For an unintentional payment, I agree. For an accidental overpayment,

From the article:

> The defendants noted that the amounts they received matched the amounts Revlon owed down to the penny, making it reasonable for them to assume it was an early repayment of the loan.

So they were safe to assume they just got paid early, at least in this case

Feels like a super odd edge-case where someone accidentally overpays a loan exactly in the amount that is due in total, but I agree. It's a fair assumption.

I think it makes sense. If you are already owing money the creditor is expecting the payment and has no reason to believe it is a mistake. If you then afterwards come and say "hey I was not supposed to pay the money i owe you, please pay it back" things become sort of complicated.

The weirdest part seems to me that the judge applied it despite the "doesn't have prior knowledge the payment was a mistake" part. The dept traded for not even half its value, nobody actually expected Revlon to ever pay it back. I think anyone on the receiving end claiming that there was nothing questionable about it suddenly getting repaid in full would have problems keeping a straight face.

From the opinion:

> The UMB Complaint was the culmination of a bitter dispute between Revlon and Citibank, on the one hand, and a group of Lenders holding a large interest in the 2016 Term Loan, led by or including most Defendants here, on the other. The group of Lenders alleged that, in the May 2020 Transaction, Citibank and Revlon had improperly manipulated the voting provisions of the 2016 Loan Agreement to gain approval of an amendment that permitted Revlon to strip collateral backing the loans.

> ...

> In that heated context, it was reasonable for the Lenders to believe — and several did believe — that Revlon and Citibank, perhaps with the help of Perelman and MacAndrews & Forbes, had figured out a creative way to pay down either enough of the Lenders to prevent them from filing the UMB Bank lawsuit or the 2016 Term Loan altogether.

> But, it's important to also point out how bizzare this exception is, how did this even get included as the one and only exception?

It's not really 'an exception'. The article most likely written by a non business person confuses a mistake (money sent to the wrong account) with money sent to the right account. The law almost certainly doesn't allow a wire transfer sent to be recovered for that reason and type of mistake. It does (by design) allow a transfer sent to a mistake (like a typo) to be recovered. This actually makes sense and here is why:

A wire transfer is payment for 'goods or services' let's say. Often that 'goods or services' is released (or relied upon) when money is received.

Wire transfers are by design 'final'. ACH is not. An ACH can be reverse (for a number of reasons).

If you could claw back wire transfers all sorts of things (that depend on them being final) would break down and you'd have all sorts of problems down the transaction line.

It's like giving someone money in a sense. You give someone money they give you something in return.

That law does seem to make it a pretty straightforward case.

I'd assume that got included as an exception due to lobbying by lenders/creditors. :) If a hundred years ago or whatever, it might require some historical digging to ascertain the details.

If we're looking for rational reasons (and laws aren't always motivated by rational reasons), we could imagine that the creditor, assuming that it was a debt repayment, has already spent the money or whatever, it's not fair to make them give it back, they might not even have it anymore. They weren't just a random person with no reason to expect the wire transfer so should have looked into it more before just spending what wasn't their money -- they had all the reason in the world to assume it was their money, and go forward accordingly. And the money was owed to them after all, so they aren't exactly keeping what didn't belong to them, they just got what belonged to them back a bit early.

My guess is since over payment is a thing 99% of overpayments are intentional and require no intervention but 1% would require an entire department to figure out the correct refund so they went to their local politicians and asked if they could skip that whole thing and that’s what the politicians agreed with.

If the clause didn't exist, I could pay off my 250K Lamborghini loan, get the title and then ask for the money back because it was a "mistake".

For similar reasons, items at Sherrif's auctions can't be returned to the original owner even if they win the original court case that led to the auction.

I mean why not? If you say it’s a mistake then you give back the title. Doesn’t seem that weird honestly.

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