Supreme Court: Bank's Set-off Scope Limited for Mistakenly Transferred Money to Seized Account

Lower court ruling allowing set-off of full mistaken remittance amount overturned and remanded... Limited to the amount of seized claim within the scope

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] The Supreme Court has ruled that when money is mistakenly transferred into a bank account under seizure, the bank's right to offset the amount against loan claims is limited to the scope of the seized claim amount.

Until now, banks have automatically offset loan claims beyond the seized claim amount when money was mistakenly transferred into accounts seized due to tax arrears or other reasons. However, this is the Supreme Court's first judgment stating that such actions violate the principle of good faith or constitute abuse of rights.

According to the legal community on the 26th, the Supreme Court recently overturned and remanded a lower court ruling that had allowed the bank to offset the mistaken transfer amount exceeding the seized claim amount in a lawsuit filed by Company A against Shinhan Bank seeking the return of unjust enrichment.

The court stated, "Even if the deposit claim equivalent to the mistaken transfer amount has already been seized by the head of the Suwon Tax Office, and the defendant (Shinhan Bank) can offset the loan claim as an automatic claim, such offsetting is only permissible within the scope of the seized claim amount. Any offset beyond this scope violates the principle of good faith or constitutes abuse of rights and is therefore not allowed."

It continued, "Therefore, the lower court should have examined the seized claim amount corresponding to the offsetting intention expressed by the defendant and determined the permissible scope of offsetting. However, without such examination, the lower court accepted all of the defendant's offsetting defenses. This misapplication of the law regarding the permissible scope of offsetting by the receiving bank in cases of mistaken fund transfers and failure to conduct necessary investigations affected the judgment, which is the reason for overturning and remanding."

In 2017, Company A mistakenly transferred about 100 million KRW intended for a client to a Shinhan Bank account under the name of Mr. B. Upon realizing the mistake immediately after the transfer, Company A notified the bank of the erroneous transfer and requested a refund, and Mr. B also agreed to return the funds.

Company A exercised its creditor's subrogation rights based on its claim for the return of unjust enrichment against Mr. B and demanded the bank return the deposit. However, the bank argued an offset defense, claiming that the mistakenly transferred 100 million KRW had been used to repay Mr. B's loan debt to the bank.

At that time, Mr. B was delinquent on national taxes amounting to about 14.5 million KRW, and the Suwon Tax Office, which had jurisdiction, had seized deposits and future deposits in the account up to that amount. Additionally, Mr. B owed approximately 217 million KRW in loans to Shinhan Bank.

When mistaken transfers occur into accounts seized by third parties, not only the rights of the mistaken transferor (Company A) but also the rights of the creditor who placed the seizure (the tax office) must be protected. For this reason, the bank's seizure measures have been approved, and precedent has held that the bank can offset its claims against the owner of the mistakenly credited account. However, there had been no clear Supreme Court stance on whether the bank's offsetting rights are limited to the seized claim amount or can exceed it.

The lower courts in the first and second trials ruled in favor of the bank, allowing offsetting of the entire 100 million KRW, exceeding the seized claim amount of about 14.5 million KRW.

However, the Supreme Court's judgment differed.

The court stated, "Even if there are special circumstances where the deposit claim equivalent to the mistakenly deposited amount in the recipient's account has already been seized by a third party, and the receiving bank is allowed to offset the recipient's loan claims as automatic claims against the recipient's deposit claims, such offsetting is only permissible within the scope of the seized claim amount. Any offset beyond this scope violates the principle of good faith or constitutes abuse of rights and is not allowed."

This content was produced with the assistance of AI translation services.