INTERMEDIARY BANK OWES NO DUTY TO BENEFICIARY OF AN ELECTRONIC FUNDS TRANSFER WHICH WAS BLOCKED BY A GOVERNMENT ORDER.

The First Department, in a full-fledged opinion by Justice Friedman, reversing Supreme Court, dismissed the lawsuit by the intended beneficiary of an electronic funds transfer (EFT) against an intermediary bank which complied with a government order to freeze the transfer. The court held the intermediary bank owed no duty to the intended beneficiary and properly returned the funds to the originator’s bank when the government order was lifted. An intermediary bank simply facilitates the transfer from the originator’s bank to the beneficiary’s bank:

…[B]ased on the allegations of [the beneficiary’s] complaint, … the originator’s bank — rather than … the intended beneficiary of the failed EFT — was plainly “the entity that passed the EFT on to … the [intermediary] bank where it . . . rest[ed]” … until the federal block was released. It follows that [the originator’s bank] was “the only entity with a property interest in the stopped EFT …” and that, upon the release of the block, [the intermediary bank] properly refunded [the originator’s bank’s] payment for the EFT pursuant to UCC 4-A-402(4), given that the EFT had long since been cancelled by operation of law under UCC 4-A-211(4). It also follows that, pursuant to UCC 4-A-212, [the beneficiary] has no claim against [the intermediary bank] with respect to this transaction. [The intermediary bank] “owed nothing to … the beneficiary since an intermediary bank has no legal obligation to the beneficiary” … . Receivers of Sabena SA v Deutsche Bank A.G., 2016 NY Slip Op 05546, 1st Dept 7-14-16

 

BANKING LAW (INTERMEDIARY BANK OWES NO DUTY TO BENEFICIARY OF AN ELECTRONIC FUNDS TRANSFER WHICH WAS BLOCKED BY A GOVERNMENT ORDER)/UNIFORM COMMERCIAL CODE (INTERMEDIARY BANK OWES NO DUTY TO BENEFICIARY OF AN ELECTRONIC FUNDS TRANSFER WHICH WAS BLOCKED BY A GOVERNMENT ORDER)/UCC (INTERMEDIARY BANK OWES NO DUTY TO BENEFICIARY OF AN ELECTRONIC FUNDS TRANSFER WHICH WAS BLOCKED BY A GOVERNMENT ORDER)