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For example, suppose that the originator, intending to issue a payment order for $100,000, instead issues an order for $1,000,000
Originator and Its Bank
to its bank. The originator’s bank executes the order by issuing its own order to an intermediary bank for $1,000,000. The originator asks its bank to agree to cancel the order. The originator’s bank is not likely to agree to cancel the order unless it is certain that it will not be liable to the intermediary bank for the $1,000,000 order issued by the originator’s bank. If the intermediary bank has executed the order by issuing its own payment order to the beneficiary’s bank, the intermediary bank is not likely to agree to cancel the order without the agreement of the beneficiary’s bank.
If the intermediary bank has not yet executed the payment order of the originator’s bank, then the originator’s bank and the intermediary bank can agree to unravel the transaction. Similarly, if the intermediary bank has executed the order but the beneficiary’s bank has not yet accepted the payment order of the intermediary bank, then the three banks can agree to unravel the transaction under § 4A-211(c). Special rules apply when the beneficiary’s bank has accepted the payment order and become obligated to pay the beneficiary.22
Risk Mitigation for the Customer. Careful review and dual controls can substantially reduce errors—“two sets of eyes are better than one.” If the Company can quickly initiate wire transfers by computer terminal, the second set of eyes may be even more important to offset typographical errors or misreads of the computer printout.
Automatic Cancellation. Automatic cancellation of a payment order occurs when the order has not been accepted at the end of the fifth funds-transfer business day after the execution date or payment date of the order.23 After the five-day period has expired, the payment order is considered to be “stale.”
Payment orders normally are executed on the execution date or the day after. An order issued to the beneficiary’s bank is normally accepted on the payment date or the day after. If a payment order is not accepted on its execution
or payment date or shortly thereafter, it is probable that there was some problem with the terms of the order or the sender did not have sufficient funds or credit to cover the amount of the order. U.C.C. Section 4A-211(d)] provides for cancellation by operation of law to prevent an unexpected delayed acceptance.24
Two More Rules about Cancellation. First, after a payment order has been canceled, the order cannot be accepted.25 (No going back and forth.) Second, a payment order is not revoked by the death or legal incapacity of the sender unless the bank knows of the death or of an adjudication of the sender’s incapacity and has a reasonable opportunity to act before accepting the order.26
Acceptance and Execution of the Originator’s Payment Order
The originator’s bank “accepts” the originator’s payment order by “executing” it, that is, by issuing its own payment order to an intermediary bank or the beneficiary’s bank intended to carry out the payment order received by the originator’s bank.27
Obligations of the Originating Bank. When the originator’s bank complies with a request and accepts the originator’s order by executing it, the bank becomes obligated under § 4A-302(a) to issue, on the “execution date,” its own payment order complying with the originator’s instructions.
The execution date is the day on which the bank may properly issue its order, that is, the date on which the bank should execute the payment order in order to ensure that payment is made to the beneficiary when it is supposed to be made.28 The originator’s payment order may specify the execution date. If the date is not otherwise specified, the execution date is the date on which the originator’s payment order is received—if it is received before the bank’s stated cutoff hour for outgoing funds transfers. The originator’s instructions may instead specify a “payment date,” that is, the date on which the amount of the order is
Originator and Its Bank
payable to the beneficiary at the beneficiary’s bank. In that event, the execution date is the payment date or the earliest date thereafter on which execution is reasonably necessary in order to allow enough time for payment to the beneficiary on the payment date.
If the originator’s bank accepts the originator’s payment order by executing it, the bank’s payment order to the next bank in the funds-transfer chain must comply with the originator’s payment order, and the bank must follow the originator’s instructions with respect to any intermediary bank or funds-transfer system to be used and with respect to the means of transmission of payment orders. Comment on risk mitigation: If the sender specifies the intermediary bank(s), the sender may lose the benefit of the “money-back guarantee” of Article 4A (see the following discussion).