Complete Home & Office Legal Guide

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/* The UCC on Electronic Fund Transfers Follows. For comments, please see Article 4, since this section mirrors its predecessor. This act is in regard to commercial transfers, and consumer transfers are governed by the EFT laws and regulations of the FTC. */ ARTICLE 4 A FUNDS TRANSFERS PART 1. SUBJECT MATTER AND DEFINITIONS Section 4A-101. Short Title. 4A-102. Subject Matter. 4A-103. Payment Order-Definitions. 4A-104. Funds Transfer-Definitions. 4A-105. Other Definitions. 4A-106. Time Payment Order Is Received. 4A-107. Federal Reserve Regulations and Operating Circulars. 4A-108. Exclusion of Consumer Transactions Governed by Federal Law. PART 2. ISSUE AND ACCEPTANCE OF PAYMENT ORDER 4A-201. Security Procedure. 4A-202. Authorized and Verified Payment Orders. 4A-203. Unenforceability of Certain Verified Payment Orders. 4A-204. Refund of Payment and Duty of Customer to Report With Respect to Unauthorized Payment Order. 4A-205. Erroneous Payment Orders. 4A-206. Transmission of Payment Order Through Funds-Transfer or Other Communication System. 4A-207. Misdescription of Beneficiary. 4A-208. Misdescription of Intermediary Bank or Beneficiary's Bank. 4A-209. Acceptance of Payment Order. 4A-210. Rejection of Payment Order. 4A-211. Cancellation and Amendment of Payment Order. 4A-212. Liability and Duty of Receiving Bank Regarding Unaccepted Payment Order. PART 3. EXECUTION OF SENDER'S PAYMENT ORDER BY RECEIVING BANK 4A-301. Execution and Execution Date. 4A-302. Obligations of Receiving Bank in Execution of Payment Order. 4A-303. Erroneous Execution of Payment Order. 4A-304. Duty of Sender to Report Erroneously Executed Payment Order. 4A-305. Liability for Late or Improper Execution or Failure to Execute Payment Order. PART 4. PAYMENT 4A-401. Payment Date. 4A-402. Obligation of Sender to Pay Receiving Bank. 4A-403. Payment by Sender to Receiving Bank. 4A-404. Obligation of Beneficiary's Bank to Pay and Give Notice to Beneficiary. 4A-405. Payment by Beneficiary's Bank to Beneficiary. 4A-406. Payment by Originator to Beneficiary; Discharge of Underlying Obligation. PART 5. MISCELLANEOUS PROVISIONS 4A-521. Variation by Agreement and Effect of Funds. Transfer System Rule. 4A-502. Creditor Process Served on Receiving Bank; Set-off by Beneficiary's Bank. 4A-503. Injunction or Restraining Order With Respect to Funds Transfer. 4A-504 Order in Which Items and Payment Orders May Be Charged to Account; Order of Withdrawals From Account. 4A-505. Preclusion of Objection to Debit of Customer's Account. 4A-506. Rate of Interest. 4A-507. Choice of Law. ARTICLE 4A FUNDS TRANSFERS PART 1 SUBJECT MATTER AND DEFINITIONS 4A-101. Short Title. This Article may be cited as Uniform Commercial Code-Funds Transfers. 4A-102. Subject Matter. Except as otherwise provided in Section 4A-108, this Article applies to funds transfers defined in Section 4A-104. 4A-103. Payment Order-Definitions. (a) In this Article: (1) "Payment order" means an instruction of a sender to a receiving bank, transmitted orally, electronically, or in writing, to pay, or to cause another bank to pay, a fixed or determinable amount of money to a beneficiary if: (i) the instruction does not state a condition to payment to the beneficiary other than time of payment (ii) the receiving bank is to be reimbursed by debiting an account of, or otherwise receiving payment from, the sender, and (iii) the instruction is transmitted by the sender directly to the receiving bank or to an agent, funds-transfer system, or communication system for transmittal to the receiving bank. (2) "Beneficiary" means the person to be paid by the beneficiary's bank. (3) "Beneficiary's bank" means the bank identified in a payment order in which an account of the beneficiary is to be credited pursuant to the order or which otherwise is to make payment to the beneficiary if the order does not provide for payment to an account. (4) "Receiving bank" means the bank to which the sender's instruction is addressed. (5) "Sender" means the person giving the instruction to the receiving bank. (b) If an instruction complying with subsection (a)(1) is to make more than one payment to a beneficiary, the instruction is a separate payment order with respect to each payment. (c) A payment order is issued when it is sent to the receiving bank. 4A-l04. Funds Transfer-Definitions. In this Article: (a) "Funds transfer" means the series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order. The term includes any payment order issued by the originator's bank or an intermediary bank intended to carry out the originator's payment order. A funds transfer is completed by acceptance by the beneficiary's bank of a payment order for the benefit of the beneficiary of the originator's payment order. (b) "Intermediary bank" means a receiving bank other than the originator's bank or the beneficiary's bank. (c) "Originator" means the sender of the first payment order in a funds transfer. (d) "Originator's bank" means (i) the receiving bank to which the payment order of the originator is issued if the originator is not a bank, or (ii) the originator if the originator is a bank. 4A-105. Other Definitions. (a) In this Article: (1) "Authorized account" means a deposit account of a customer in a bank designated by the customer as a source of payment of payment orders issued by the customer to the bank. If a customer does not so designate an account, any account of the customer is an authorized account if payment of a payment order from that account is not inconsistent with a restriction on the use of that account. (2) "Bank" means a person engaged in the business of banking and includes a savings bank, savings and loan association, credit union, and trust company. A branch or separate office of a bank is a separate bank for purposes of this Article. (3) "Customer" means a person, including a bank, having an account with a bank or from whom a bank has agreed to receive payment orders. (4) "Funds-transfer business day" of a receiving bank means the part of a day during which the receiving bank is open for the receipt, processing, and transmittal of payment orders and cancellations and amendments of payment orders. (5) "Funds-transfer system" means a wire transfer network, automated clearing-house, or other communication system of a clearing house or other association of banks through which a payment order by a bank may be transmitted to the bank to which the order is addressed. (6) "Good faith" means honesty in fact and the observance of reasonable commercial standards of fair dealing. (7) "Prove" with respect to a fact means to meet the burden of establishing the fact (Section 1-201(S)). (b) Other definitions applying to this Article and the sections in which they appear are: "Acceptance" Section 4A-209 "Beneficiary" Section 4A-103 "Beneficiary's bank" Section 4A-103 "Executed" Section 4A-301 "Execution date" Section 4A-301 "Funds transfer" Section 4A-104 "Funds-transfer system rule" Section 4A-501 "Intermediary bank" Section 4A-104 "Originator" Section 4A-104 "Originator's bank" Section 4A-104 "Payment by beneficiary's bank to beneficiary" Section 4A-405 "Payment by originator to beneficiary" Section 4A-406 "Payment by sender to receiving bank" Section 4A-403 "Payment date" Section 4A-401 "Payment order" Section 4A-103 "Receiving bank" Section 4A-103 "Security procedure" Section 4A-201 "Sender" Section 4A-103 (c) The following definitions in Article 4 apply to this Article: "Clearing house" Section 4-104 "Item" Section 4-104 "Suspends payments" Section 4-104 (d) In addition Article 1 contains general definitions and principles of construction and interpretation applicable throughout this Article. 4A-106. Time Payment Order Is Received. (a) The time of receipt of a payment order or communication cancelling or amending a payment order is determined by the rules applicable to receipt of a notice stated in Section 1-201(27). A receiving bank may fix a cut-off time or times on a funds-transfer business day for the receipt and processing of payment orders and communications cancelling or amending payment orders. Different cut-off times may apply to payment orders, cancellations, or amendments, or to different categories of payment orders, cancellations, or amendments. A cut-off time may apply to senders generally or different cut-off times may apply to different senders or categories of payment orders. If a payment order or communication cancelling or amending a payment order is received after the close of a funds-transfer business day or after the appropriate cut-off time on a funds-transfer business day, the receiving bank may treat the payment order or communication as received at the opening of the next funds-transfer business day. (b) If this Article refers to an execution date or payment date or states a day on which a receiving bank is required to take action, and the date or day does not fall on a funds-transfer business day, the next day that is a funds-transfer business day is treated as the date or day stated, unless the contrary is stated in this Article. 4A-107. Federal Reserve Regulations and Operating Circulars. Regulations of the Beard of Governors of the Federal Reserve System and operating circulars of the Federal Reserve Banks supersede any inconsistent provision of this Article to the extent of the inconsistency. 4A-108. Exclusion of Consumer Transactions Governed by Federal Law This Article does not apply to a funds transfer any part of which is governed by the Electronic Fund Transfer Act of 1978 as amended from time to time. PART 2 ISSUE AND ACCEPTANCE OF PAYMENT ORDER 4A-201. Security Procedure "Security procedure" means a procedure established by agreement of a customer and a receiving bank for the purpose of (i) verifying that a payment order or communication amending or cancelling a payment order is that of the customer, or (ii) detecting error in the transmission or the content of the payment order or communication. A security procedure may require the use of algorithms or other codes, identifying words or numbers, encryption, callback procedures, or similar security devices. Comparison of a signature on a payment order or communication with an authorized specimen signature of the customer is not by itself a security procedure. 4A-202. Authorized and Verified Payment Orders. (a) A payment order received by the receiving bank is the authorized order of the person identified as sender if that person authorized the order or is otherwise bound by it under the law of agency. (b) If a bank and its customer have agreed that the authenticity of payment orders issued to the bank in the name of the customer as sender will be verified pursuant to a security procedure, a payment order received by the receiving bank is effective as the order of the customer, whether or not authorized, if (i) the security procedure is a commercially reasonable method of providing security against unauthorized payment orders, and (ii) the bank proves that it accepted the payment order in good faith and in compliance with the security procedure and any written agreement or instruction of the customer restricting acceptance of payment orders issued in the name of the customer. The bank is not required to follow an instruction that violates a written agreement with the customer or notice of which is not received at a time and in a manner affording the bank a reasonable opportunity to act on it before the payment order is accepted. (c) Commercial reasonableness of a security procedure is a question of law to be determined by considering the wishes of the customer expressed to the bank, the circumstances of the customer known to the bank, including the size, type, and frequency of payment orders normally issued by the customer to the bank, alternative security procedures offered to the customer, and security procedures in general use by customers and receiving banks similarly situated. A security procedure is deemed to be commercially reasonable if (i) the security procedure was chosen by the customer after the bank offered, and the customer refused, a security procedure that was commercially reasonable for that customer, and (ii) the customer expressly in writing to be bound by any payment order, whether or not authorized, issued in its name and accepted by the bank in compliance with the security procedure chosen by the customer. (d) The term "sender" in this Article includes the customer in whose name a payment order is issued if the order is the authorized order of the customer under subsection (a), or it is effective as the order of the customer under subsection (b). (e) This section applies to amendments and cancellations of payment orders to the same extent it applies to payment orders. (f) Except as provided in this section and in Section 4A-203(a)(1), rights and obligations arising under this section or Section 4A-203 may not be varied by agreement 4A-203. Unenforceability of Certain Verified Payment Orders. (a) If an accepted payment order is not, under Section 4A-202(a), an authorized order of a customer identified as sender, but is effective as an order of the customer pursuant to Section 4A-202(b), the following rules apply: (1) By express written agreement, the receiving bank may limit the extent to which it is entitled to enforce or retain payment of the payment order. (2) The receiving bank is not entitled to enforce or retain payment of the payment order if the customer proves that the order was not caused, directly or indirectly, by a person (i) entrusted at any time with duties to act for the customer with respect to payment orders or the security procedure, or (ii) who obtained access to transmitting facilities of the customer or who obtained, from a source controlled by the customer and without authority of the receiving bank, information facilitating breach of the security procedure, regardless of how the information was obtained or whether the customer was at fault. Information includes any access device, computer software, or the like. (b) This section applies to amendments of payment orders to the same extent it applies to payment orders. 4A-204. Refund of Payment and Duty of Customer to Report with Respect to Unauthorized Payment Order. (a) If a receiving bank accepts a payment order issued in the name of its customer as sender which is (i) not authorized and not effective as the order of the Customer under Section 4A-202, or (ii) not enforceable, in whole or in part, against the customer under Section 4A-203, the bank shall refund any payment of the payment order received from the customer to the extent the bank is not entitled to enforce payment and shall pay interest on the refundable amount calculated from the date the bank received payment to the date of the refund. However, the customer is not entitled to interest from the bank on the amount to be refunded if the customer fails to exercise ordinary care to determine that the order was not authorized by the customer and to notify the bank of the relevant facts within a reasonable time not exceeding 90 days after the date the customer received notification from the bank that the order was accepted or that the customer's account was debited with respect to the order. The bank is not entitled to any recovery from the customer on account of a failure by the customer to give notification as stated in this section. (b) Reasonable time under subsection (a) may be fixed by agreement as stated in Section 1-204(1), but the obligation of a receiving bank to refund payment as stated in subsection (a) may not otherwise be varied by agreement. 4A-205. Erroneous Payment Orders. (a) If an accepted payment order was transmitted pursuant to a security procedure for the detection of error and the payment order (i) erroneously instructed payment to a beneficiary not intended by the sender, (ii) erroneously instructed payment in an amount greater than the amount intended by the sender, or (iii) was an erroneously transmitted duplicate of a payment order previously sent by the sender, the following rules apply: (1) If the sender proves that the sender or a person acting on behalf of the sender pursuant to Section 4A-206 complied with the security procedure and that the error would have been detected if the receiving bank had also complied, the sender is not obliged to pay the order to the extent stated in paragraphs (2) and (3). (2) If the funds transfer is completed on the basis of an erroneous payment order described in clause (i) or (iii) of subsection (a), the sender is not obliged to pay the order and the receiving bank is entitled to recover from the beneficiary any amount paid to the beneficiary to the extent allowed by the law governing mistake and restitution. (3) If the funds transfer is completed on the basis of a payment order described m clause (ii) of subsection (a), the sender is not obliged to pay the order to the extent the amount received by the beneficiary is greater than the amount intended by the sender. In that case, the receiving bank is entitled to recover from the beneficiary the excess amount received to the extent allowed by the law governing mistake and restitution. (b) If (i) the sender of an erroneous payment order described in subsection (a) is not obliged to pay all or part of the order, and (ii) the sender receives notification from the receiving bank that the order was accepted by the bank or that the sender's account was debited with respect to the order, the sender has a duty to exercise ordinary care, on the basis of information available to the sender, to discover the error with respect to the order and to advise the bank of the relevant facts within a reasonable time, not exceeding 90 days, after the bank's notification was received by the sender. If the bank proves that the sender failed to perform that duty, the sender is liable to the bank for the loss the bank proves it incurred as a result of the failure, but the liability of the sender may not exceed the amount of the sender's order. (c) This section applies to amendments to payment orders to the same extent it applies to payment orders. 4A-206. Transmission of Payment Order Through Funds-Transfer or Other Communication System. (a) If a payment order addressed to a receiving bank is transmitted to a funds transfer system or other third-party communication system for transmittal to the bank, the system is deemed to be an agent of the sender for the purpose of transmitting the payment order to the bank. If there is a discrepancy between the terms of the payment order transmitted to the system and the terms of the payment order transmitted by the system to the bank, the terms of the payment order of the sender are those transmitted by the system. This section does not apply to a funds-transfer system of the Federal Reserve Banks. (b) This section applies to cancellations and amendments of payment orders to the same extent it applies to payment orders. 4A-207. Misdescription of Beneficiary. (a) Subject to subsection (b), if, in a payment order received by the beneficiary's bank, the name, bank account number, or other identification of the beneficiary refers to a nonexistent or unidentifiable person or account, no person has rights as a beneficiary of the order and acceptance of the order cannot occur. (b) If a payment order received by the beneficiary's bank identifies the beneficiary both by name and by an identifying or bank account number and the name and number identify different persons, the following rules apply: (1) Except as otherwise provided in subsection (c), if the beneficiary's bank does not know that the name and number refer to different persons, it may rely on the number as the proper identification of the beneficiary of the order. The beneficiary's bank need not determine whether the name and number refer to the same person. (2) If the beneficiary's bank pays the person identified by name or knows that the name and number identify different persons, no person has rights as beneficiary except the person paid by the beneficiary's bank if that person was entitled to receive payment from the originator of the funds transfer. If no person has rights as beneficiary, acceptance of the order cannot occur. (c) If (i) a payment order described in subsection (b) is accepted, (ii) the originator's payment order described the beneficiary inconsistently by name and number, and (iii) the beneficiary's bank pays the person identified by number as permitted by subsection (b)(1), the following rules apply: (1) If the originator is a bank, the originator is obliged to pay its order. (2) If the originator is not a bank and proves that the person identified by number was not entitled to receive payment from the originator, the originator is not obliged to pay its order unless the originator's bank proves that the originator, before acceptance of the originator's order, had notice that payment of a payment order issued by the originator might be made by the beneficiary's bank on the basis of an identifying or bank account number even if it identifies a person different from the named beneficiary. Proof of notice may be made by any admissible evidence. The originator's bank satisfies the burden of proof if it proves that the originator, before the payment order was accepted, signed a writing stating the information to which the notice relates. (d) In a case governed by subsection (b)(1), if the beneficiary's bank rightfully pays the person identified by number and that person was not entitled to receive payment from the originator, the amount paid may be recovered from that person to the extent allowed by the law governing mistake and restitution as follows: (1) If the originator is obliged to pay its payment order as stated in subsection (c), the originator has the right to recover. (2) if the originator is not a bank and is not obliged to pay its payment order, the originator's bank has the right to recover. 4A-208. Misdescription of Intermediary Bank or Beneficiary's Bank (a) This subsection applies to a payment order identifying an intermediary bank or the beneficiary's bank only by an identifying number. (1) The receiving bank may rely on the number as the proper identification of the intermediary or beneficiary's bank and need not determine whether the number identifies a bank. (2) The sender is obliged to compensate the receiving bank for any loss and expenses incurred by the receiving bank as a result of its reliance on the number in executing or attempting to execute the order. (b) This subsection applies to a payment order identifying an intermediary bank or the beneficiary's bank both by name and an identifying number if the name and number identify different persons. (1) If the sender is a bank, the receiving bank may rely on the number as the proper identification of the intermediary or beneficiary's bank if the receiving bank, when it executes the sender's order, does not know that the name and number identify different persons. The receiving bank need not determine whether the name and number refer to the same person or whether the number refers to a bank. The sender is obliged to compensate the receiving bank for any loss and expenses incurred by the receiving bank as a result of its reliance on the number in executing or attempting to execute the order. (2) If the sender is not a bank and the receiving bank proves that the sender, before the payment order was accepted, had notice that the receiving bank might rely on the number as the proper identification of the intermediary or beneficiary's bank even if it identifies a person different from the bank identified by name, the rights and obligations of the sender and the receiving bank are governed by subsection (b)(1), as though the sender were a bank. Proof of notice may be made by any admissible evidence. The receiving bank satisfies the burden of proof if it proves that the sender, before the payment order was accepted, signed a writing stating the information to which the notice relates. (3) Regardless of whether the sender is a bank, the receiving bank may rely on the name as the proper identification of the intermediary or beneficiary's bank if the receiving bank, at the time it executes the sender's order, does not know that the name and number identify different persons. The receiving bank need not determine whether the name and number refer to the same person. (4) If the receiving bank knows that the name and number identify different persons, reliance on either the name or the number in executing the sender's payment order is a breach of the obligation stated in Section 4A-302(a)(1). 4A-209. Acceptance of Payment Order. (a) Subject to subsection (d), a receiving bank other than the beneficiary's bank accepts a payment order when it executes the order. (b) Subject to subsections (c) and (d), a beneficiary's bank accepts a payment order at the earliest of the following times: (1) when the bank (i) pays the beneficiary as stated in Section 4A-405(a) or 4A-405(b), or (ii) notifies the beneficiary of receipt of the order or that the account of the beneficiary has been credited with respect to the order unless the notice indicates that the bank is rejecting the order or that funds with respect to the order may not be withdrawn or used until receipt of payment from the sender of the order; (2) when the bank receives payment of the entire amount of the sender's order pursuant to Section 4A-403(a)(1) or 4A-403(a)(2); or (3) the opening of the next funds-transfer business day of the bank following the payment date of the order if, at that time, the amount of the sender's order is fully covered by a withdrawable credit balance in an authorized account of the sender or the bank has otherwise received full payment from the sender, unless the order was rejected before that time or is rejected within (i) one hour after that time, or (ii) one hour after the opening of the next business day of the sender following the payment date if that time is later. If notice of rejection is received by the sender after the payment date and the authorized account of the sender does not bear interest, the bank is obliged to pay interest to the sender on the amount of the order for the number of days elapsing after the payment date to the day the sender receives notice or learns that the order was not accepted, counting that day as an elapsed day. If the withdrawable credit balance during that period falls below the amount of the order, the amount of interest payable is reduced accordingly. (c) Acceptance of a payment order cannot occur before the order is received by the receiving bank. Acceptance does not occur under subsection (b)(2) or (b)(3) if the beneficiary of the payment order does not have an account with the receiving bank, the account has been closed, or the receiving bank is not permitted by law to receive credits for the beneficiary's account. (d) A payment order issued to the originator's bank cannot be accepted until the payment date if the bank is the beneficiary's bank, or the execution date if the bank is not the beneficiary's bank. If the originator's bank executes the originator's payment order before the execution date or pays the beneficiary of the originator's payment order before the payment date and the payment order is subsequently canceled pursuant to Section 4A-211(b), the bank may recover from the beneficiary any payment received to the extent allowed by the law governing mistake and restitution. 4A-210. Rejection of Payment Order. (a) A payment order is rejected by the receiving bank by a notice of rejection transmitted to the sender orally, electronically, or in writing. A notice of rejection need not use any particular words and is sufficient if it indicates that the receiving bank is rejecting the order or will not execute or pay the order. Rejection is effective when the notice is given if transmission is by a means that is reasonable in the circumstances. If notice of rejection is given by a means that is not reasonable, rejection is effective when the notice is received. If an agreement of the sender and receiving bank establishes the means to be used to reject a payment order, (i) any means complying with the agreement is reasonable and (ii) any means not complying is not reasonable unless no significant delay in receipt of the notice resulted from the use of the noncomplying means.