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If the loss with respect to an error is shifted to the receiving bank and the sender is notified by the bank that the erroneous payment order was accepted, the sender has a duty to exercise ordinary care to discover the error and notify the bank of the relevant facts within a reasonable time not exceeding 90 days. If the bank can prove that the sender failed in this duty, it is entitled to compensation for the loss incurred as a result of the failure. Whether the bank is entitled to recover from the sender depends upon whether the failure to give timely notice would have made any difference. If the bank could not have recovered from the beneficiary that received payment under the erroneous payment order even if timely notice had been given, the sender’s failure to notify did not cause any loss of the bank.82
Banks generally have not wished to be liable for their customers’ errors, even when they fail to comply with security procedures for the detection of errors. Thus, wire transfer agreements between banks and their customers typically disclaim § 4A-205 liability for such errors:
Section 4A-205 is subject to variation by agreement under Section 4A-501.83 Thus, if a receiving bank and its customer have agreed to a security procedure for detection of error, the liability of the receiving bank for failing to
detect an error of the customer as provided in Section 4A-205 may be varied as provided in an agreement of the bank and its customer.84
Normally, a bank will want to disclaim liability under § 4A-205 in a wire transfer agreement. The disclaimer should be direct and unambiguous. A statement that there are no security procedures in effect for the detection of errors is not as effective as a statement disclaiming liability.
Reminder: Most risks of the wire transfer payment system are best controlled before the wire transfer order is released by the originator to its bank. Preventing and correcting errors are very difficult thereafter.
1. U.C.C. § 4A-212.
2. U.C.C. § 4A-209(b)(1)(i).
3. U.C.C. § 4A-405(a).
4. Id. In addition, if the bank does not credit an account of the beneficiary, the time when payment occurs is governed by “principles of law that determine when an obligation is satisfied.” Under U.C.C. § 4A-405(b), an over-the-counter payment to the beneficiary would be governed by such legal principles. Such payment would constitute payment and acceptance under U.C.C. §§ 4A-405(b) and 4A-209(b)(1).
5. Official Comment 2 to U.C.C. § 4A-405.
6. U.C.C. § 4A-405(d).
7. U.C.C. § 4A-405(e).
8. U.C.C. § 4A-209(b)(1)(ii).
9. A person “notifies” another person under U.C.C. § 1-
201(26) by taking such steps as may be reasonably required
to inform the other person in the ordinary course, whether or not the other person actually comes to know of it.
10. Official Comment 5 to U.C.C. § 4A-209.
11. U.C.C. § 4A-209(b)(2).
12. Official Comment 6 to U.C.C. § 4A-209.
14. U.C.C. § 4A-401.
15. Official Comment 8 to U.C.C. § 4A-209.
16. U.C.C. § 4A-209(b)(3).
17. Official Comment 8 to U.C.C. § 4A-209. The notice must be
given, at the latest, within one hour after the opening of the funds-transfer business day of the beneficiary’s bank or the sender, whichever is later. Interest is computed on the basis of the time of receipt of the notice, not according to when it is sent. The extra days of delay beyond the one day presumably refer to notice in writing that is not received until
a subsequent day and possibly not until after a weekend.
18. See Official Comment 4 to U.C.C. § 4A-211.
19. U.C.C. § 4A-211(c)(2).
20. Official Comment 4 to U.C.C. § 4A-211.
21. U.C.C. § 4A-404(a). The provision is subject to the Article
4A rules regarding cancellation of an accepted payment order (U.C.C. § 4A-211(e)) and funds transfer system rules (U.C.C. § 4A-405(d) and (e)).
23. Id. The rules regarding the availability of the funds under Article 4A may be subject to preemption by the Expedited Funds Availability Act, 12 U.S.C. 4001 et seq. See Official Comment 1 to U.C.C. § 4A-404. For a thoughtful discussion of such preemption, see Geva, The Law of Electronic Funds Transfers, 2.11.
24. U.C.C. § 4A-404(a).
25. U.C.C. § 4A-404(c).
26. 673 F.2d 951 (7th Cir. 1982).
27. Official Comment 2 to U.C.C. § 4A-404.
28. Official Comment 3 to U.C.C. § 4A-404.
29. U.C.C. § 4A-404(b).
30. Official Comment 4 to U.C.C. § 4A-404.
31. U.C.C. § 4A-404(a).
32. U.C.C. § 4A-406(b).
33. Official Comment 1 to U.C.C. § 4A-406.
34. Official Comment 2 to U.C.C. § 4A-406.
35. Official Comment 3 to U.C.C. § 4A-406.
36. See the last sentence of U.C.C. § 4A-406(b) for the origina-