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This section discusses the legal solutions to the complicated situations than can arise when the funds have been transferred but the beneficiary has not received the funds. Once the bank has accepted the final payment order, the last link in the funds-transfer chain, the beneficiary is entitled to payment. If the bank has credited the funds to the wrong account, the beneficiary is entitled to be paid by the bank. If the bank has exercised any set-off rights against the transferred funds, then the beneficiary will be
Rules for Errors
deemed to have been paid to the extent that the bank has set off an amount equivalent to the bank’s claim against the beneficiary.
The originator may arrange with the beneficiary that the beneficiary will confirm receipt of wire transfer payments. Doing so will help to ensure that the originator will know when the transferred funds have actually been received by the beneficiary, and if they have not been received, the originator will know that as well. That type of arrangement is especially appropriate when funds are transferred in very large amounts, or are wired as part of contractual closing requirements, and in other situations in which the parties agree that confirmation is appropriate. Such arrangements do not directly involve the sending, intermediary, or receiving banks.
RULES FOR ERRORS
The general rule with respect to errors under Article 4A is that the customer and the bank are each liable for their own errors. The general rule is not explicitly stated as such in Article 4A, but it may be extrapolated from all of the rules relating to the errors of the parties in the funds-transfer chain.52
Errors can occur at each link in the chain. The customer may commit an error in the first payment order in the chain that originates the funds transfer. The customer’s bank may commit an error in the payment order it issues in execution of the order. An intermediary bank may commit an error when it executes the payment order it receives, and the beneficiary’s bank may commit an error when it accepts the final payment order in the funds-transfer chain.
This section examines the rules applicable to the errors that may be committed in the course of a funds transfer by the various parties to the transfer, beginning with the customer’s errors.
General Rule for Customer Errors
The general rule is that the Customer is liable for its own errors contained in any payment order issued to the customer’s bank.
The general rule is not explicitly stated in Article 4A but is implicit in § 4A-302(a)(1).
A receiving bank has no obligation to execute a payment order it has received.53 If the bank nevertheless accepts the order, however, § 4A-302(a) states that the bank is obliged to issue “a payment order complying with the sender’s order” and also obliged to follow the sender’s instructions concerning:
• Any intermediary bank or funds-transfer system to be used in carrying out the funds transfer, or
• The means by which payment orders are to be transmitted in the funds transfer.
Moreover, the originator’s bank is obliged to instruct the intermediary bank according to the instruction of the originator.
Stated otherwise, if the payment order of the customer contains an error, the bank is obliged to perpetuate the error because the bank is obliged to comply with the customer’s instructions. On this basis, the bank cannot be held liable for the customer’s errors.
Special rules apply, however, to errors designated by Article 4A as “misdescription” errors and when the bank and the customer have agreed that the bank will use a security procedure to detect the customer’s errors. These rules are discussed in the following paragraphs.
Probably the most common form of customer error is a misdescription error. A misdescription occurs when the customer identifies the beneficiary or a bank in the funds-transfer transaction by both a name and a number, and the name and number identify different persons, that is, either the name or the number is erroneous. Liability for losses resulting from the misdescription of the beneficiary is covered by § 4A-207, and liability for losses resulting from the misdescription of a bank is covered by § 4A-208.
Rules for Errors
Misdescription of the Beneficiary. In a typical case involving the misdescription of the beneficiary, the customer’s payment order to its bank identifies the beneficiary by a name and a number. The name and number refer to different persons. The name is correct, but the number identifies the wrong person. When the payment order reaches the beneficiary’s bank, the bank ignores the name and processes the payment order on the basis of the number. As a result, the funds are credited to the wrong person. If the funds cannot be recovered from that person, who is liable for the loss: the customer or the beneficiary’s bank?