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Managing. The risk of Payment System - Turner P.

Turner P. Managing. The risk of Payment System - John Wiley & Sons, 2003. - 253 p.
ISBN 0-471-32848-0
Download (direct link): managingtherisksofpayment2003.pdf
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Cancellation and Amendment of Payment Orders
What if the sender makes a mistake—or a fraudulent transfer order is detected? Sometimes the sender of a payment order wants to cancel or amend the order. The Official Comments explain:
The sender of a payment order may want to withdraw or change the order because the sender has had a change of mind about the transaction or because the payment order was erroneously issued or for any other reason. One common situation is that of multiple transmission of the same order. The sender that mistakenly transmits the same order twice wants to correct the mistake by cancelling the duplicate order. Or, a sender may have intended to order a payment of $1,000,000 but mistakenly issued an order to pay $10,000,000. In this case the sender might try to correct the mistake by cancelling the order and issuing another order in the proper amount. Or, the mistake could be corrected by amending the order to change it to the proper amount. Whether the error is corrected by amendment or cancellation and reissue the net result is the same.10
Article 4A allows the sender of a payment order to cancel or amend the order by communicating instructions to the bank to
64
Originator and Its Bank
cancel or amend the order, provided that the communication is received “at a time and in a manner affording the bank a reasonable opportunity to act on the communication” and before the bank has accepted the order.1
Just as in the case of the original payment order, the instructions to cancel or amend the order may be transmitted orally, electronically, or in writing.12 If a security procedure is in effect between the originator and the bank, the originator’s communication is not effective unless it is verified pursuant to the security procedure or the bank agrees to the cancellation or amendment.13
Hurry! The originator is not likely to have much time in which to send effective cancellation or amendment instructions before the bank has accepted the payment order by executing it, that is, before the bank issues its own order to the next bank in the funds-transfer payment chain. After the bank has accepted the order, amendment or cancellation instructions are not effective unless the bank agrees to accept them.14 If the bank has not yet accepted the order, the sender can unilaterally cancel or amend. The communication canceling or amending the payment order must be received in time to allow the bank to act on it before the bank issues its payment order in execution of the sender’s order. The time that the sender’s communication is received is defined by § 4A-106.15 If a payment order does not specify a delayed payment date or execution date, the order will normally be executed shortly after receipt. Thus, as a practical matter, the sender will have very little time in which to instruct cancellation or amendment before acceptance. In addition, a receiving bank will normally have cutoff times for the receipt of such communications, and the receiving bank is not obliged to act on communications received after the cutoff time.16
Once the bank has accepted the originator’s order by executing it, the payment order may not be canceled or amended except with the agreement of the receiving bank,17 and even then the cancellation is not effective until the receiving bank has issued its own instructions canceling or amending the payment order it has issued to the next bank in the funds-transfer chain.18
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Wire Transfers
The Official Comments explain why a bank that receives a cancellation request after it has executed the original payment order has no liability with respect to the request:
Cancellation by the sender after execution of the order by the receiving bank requires the agreement of the bank unless a funds transfer rule otherwise provides.19
Although execution of the sender’s order by the receiving bank does not itself impose liability on the receiving bank (under Section 4A-402 no liability is incurred by the receiving bank to pay its order until it is accepted), it would commonly be the case that acceptance follows shortly after issuance. Thus as a practical matter, a receiving bank that has executed a payment order will incur a liability to the next bank in the chain before it would be able to act on the cancellation request of the customer. It is unreasonable to impose on the receiving bank a risk of loss with respect to a cancellation request without the consent of the receiving bank.20
Banks Affected by a Requested Amendment or Cancellation— Unraveling the Transfers. If the originator is allowed to cancel its payment order, the entire transaction ought to be unraveled. “It makes no sense to allow cancellation of a payment order unless all subsequent payment orders in the funds transfer that were issued because of the canceled payment order are also canceled. Under [§ 4A-211(c)(1)], if a receiving bank consents to cancellation of the payment order after it is executed, the cancellation is not effective unless the receiving bank also cancels the payment order issued by the bank.”21 In other words, when the originator’s order is canceled or amended after the originator’s bank has executed the order, the funds transfer may be unraveled only with the consent of the parties that have participated in the transfer.
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