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Bank Properly Reversed Wire Transfer to Plaintiff’s Account After Learning Payment Was Not Authorized by the Holder of the Account from Which the Money Was Transferred—Plaintiff, Which Had Provided the Fake Buyer with Products Ostensibly Purchased with the Funds Initially Transferred to Plaintiff’s Account, Was Not Entitled to Those Funds Because the Funds Had Been Properly Returned by the Defendant Banks Pursuant to the Wire-Transfer Provisions of the UCC

The Second Department determined summary judgment in favor of the defendant banks (TD Bank and Eastern Bank) was properly granted.  Plaintiff, Golden Door, sold watches worth $71,000 to a fake buyer after the money was wired from the ostensible buyer's (MHIC's) account at defendant Eastern Bank to plaintiff's account in defendant TD Bank.  It turned out that the wire transfer was the result of the “hacking” of ostensible buyer's account. When Eastern Bank was notified the buyer had not authorized the transfer, Eastern Bank notified TD Bank which then reversed the transfer of the $71,000. Plaintiff sued for the $71,000.  The Second Department found that, under the wire-transfer provisions of the UCC, plaintiff was not entitled to the $71,000:

Under Article 4-A, a funds transfer is initiated by a “payment order,” which is an instruction from the person making the payment (the “originator”), to a “receiving” or “intermediary” bank to transfer the funds to the bank account of the beneficiary, normally in the “beneficiary's bank” (UCC 4-A-103, 4-A-104). Here, MHIC was indicated as the originator, Eastern Bank was the receiving bank, Golden Door was the beneficiary, and TD Bank was the beneficiary's bank.

Under Article 4-A, “a beneficiary's bank accepts a payment order when the bank pays the beneficiary by crediting the beneficiary's account and notifying the beneficiary of the right to withdraw the credit” (…see UCC 4-A-209[a]; 4-A-405[1][i]). Once the beneficiary's bank accepts the payment order, a cancellation of the order is not effective unless the beneficiary's bank agrees and, as relevant here, the order was unauthorized in the first place (see UCC 4-A-211[3][b]…). “If the payment order is cancelled . . . the beneficiary's 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” (UCC 4-A-211[3][b]). Once cancelled, “the acceptance [of the payment order] is nullified and no person has any right or obligation based on the acceptance” (UCC 4-A-211[5], Comment 4, Case #1).

In support of their motion for summary judgment dismissing the complaint, the defendants established prima facie that the cancellation of the payment order was effective. The defendants submitted evidence that TD Bank, the beneficiary's bank, agreed to the cancellation, and that MHIC had not authorized the transfer (see UCC 4-A-211[3][b], Comment 1). The defendants further established prima facie that TD Bank was authorized to recover payment from Golden Door in the amount of the cancelled transfer in accordance with the “law governing mistake and restitution” (UCC 4-A-211[3][b]). The applicable doctrine of restitution is the “discharge for value” rule. Under that rule, ” [a] creditor of another or one having a lien on another's property who has received from a third person any benefit in discharge of the debt or lien, is under no duty to make restitution therefor, although the discharge was given by mistake of the transferor as to his interests or duties, if the transferee made no misrepresentation and did not have notice of the transferor's mistake'” (…quoting Restatement of Restitution § 14[1]). Although Golden Door had made no misrepresentation, the defendants established that Golden Door had notice that the transfer from MHIC was given by “mistake,” or was unauthorized. Specifically, the transfer order indicated that the transferor was MHIC, which was not Golden Door's “customer,” was not indebted to Golden Door, and had no apparent relationship with it or its “customer” (see UCC 4-A-211, Comment 4, Cases #2-#4…). Accordingly, Golden Door could not, under the discharge for value rule, retain the funds that had been transferred into its account. In opposition to the defendants' prima facie showing, Golden Door failed to raise a triable issue of fact. Golden Door V & I Inc v TD Bank, 2014 NY Slip Op 08960, 2nd Dept 12-24-14


 

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