2006 Ohio Revised Code - 1304.60. (UCC 4A-205) Erroneous payment orders.

§ 1304.60. (UCC 4A-205) Erroneous payment orders.
 

(A)  Division (B) of this section applies if an accepted payment order was transmitted pursuant to a security procedure for the detection of error, and any of the following applies: 

(1) The payment order erroneously instructed payment to a beneficiary not intended by the sender. 

(2) The payment order erroneously instructed payment in an amount greater than the amount intended by the sender. 

(3) The payment order was an erroneously transmitted duplicate of a payment order previously sent by the sender. 

(B) (1)  If the sender proves that the sender or a person acting on behalf of the sender pursuant to section 1304.61 of the Revised Code complied with the security procedure and that the error would have been detected if the receiving bank had also complied, the sender is not obliged to pay the order to the extent provided in divisions (B)(2) and (3) of this section. 

(2) If the funds transfer is completed on the basis of an erroneous payment order described in division (A)(1) or (3) of this section, the sender is not obliged to pay the order and the receiving bank may recover from the beneficiary any amount paid to the beneficiary to the extent allowed by the law governing mistake and restitution. 

(3) If the funds transfer is completed on the basis of a payment order described in division (A)(2) of this section, the sender is not obliged to pay the order to the extent the amount received by the beneficiary is greater than the amount intended by the sender. In that case, the receiving bank may recover from the beneficiary the excess amount received to the extent allowed by the law governing mistake and restitution. 

(C)  If the sender of an erroneous payment order described in division (A) of this section is not obliged to pay all or part of the order, and the sender receives notification from the receiving bank that the order was accepted by the bank or that the sender's account was debited with respect to the order, the sender has a duty to exercise ordinary care, on the basis of information available to the sender, to discover the error with respect to the order and to advise the bank of the relevant facts within a reasonable time, not exceeding ninety days, after the bank's notification was received by the sender. If the bank proves that the sender failed to perform that duty, the sender is liable to the bank for the loss the bank proves it incurred as a result of the failure, provided that the liability of the sender may not exceed the amount of the sender's order. 

(D)  This section applies to amendments to payment orders to the same extent it applies to payment orders. 
 

HISTORY: 144 v H 221. Eff 10-23-91.

 

Official Comment

1. This section concerns error in the content or in the transmission of payment order. It deals with three kinds of error. Case No. 1. The order identifies a beneficiary not intended by the sender. For example, Sender intends to wire funds to a beneficiary identified only by an account number. The wrong account number is stated in the order. Case No. 2. The error is in the amount of the order. For example, Sender intends to wire one thousand dollar ($1,000) to beneficiary. Through error, the payment order instructs payment of one million dollars ($1,000,000). Case No. 3. A payment order is sent to the receiving bank and then, by mistake, the same payment order is sent to the receiving bank again. In Case No. 3, the receiving bank may have no way of knowing whether the second order is a duplicate of the first or is another order. Similarly, in Case No. 1 and Case No. 2, the receiving bank may have no way of knowing that the error exists. In each case, if this section does not apply and the funds transfer is completed, sender is obliged to pay the order. Section 4A-402. Sender's remedy, based on payment by mistake, is to recover from the beneficiary that received payment. 

Sometimes, however, transmission of payment orders of the sender to the receiving bank is made pursuant to a security procedure designed to detect one or more of the errors described above. Since "security procedure" is defined by section 4A-201 as "a procedure established by agreement of a customer and a receiving bank for the purpose of detecting error," section 4A-205 does not apply if the receiving bank and the customer did not agree to the establishment of a procedure for detecting error. A security procedure may be designed to detect an account number that is not one to which sender normally makes payment. In that case, the security procedure may require a special verification that payment to the stated account number was intended. In the case of dollar amounts, the security procedure may require different codes for different dollar amounts. If a one million dollar ($1,000,000) payment order contains a code that is inappropriate for that amount, the error in amount should be detected. In the case of duplicate orders, the security procedure may require that each payment order be identified by a number or code that applies to no other order. If the number or code of each payment order received is registered in a computer base, the receiving bank can quickly identify a duplicate order. The three cases covered by this section are essentially similar. In each, if the error is not detected, some beneficiary will receive funds that the beneficiary was not intended to receive. If this section applies, the risk of loss with respect to the error of the sender is shifted to the bank which has the burden of recovering the funds from the beneficiary. The risk of loss is shifted to the bank only if the sender proves that the error would have been detected if there had been compliance with the procedure and that the sender (or an agent under section 4A-206) complied. In the case of a duplicate order or a wrong beneficiary, the sender doesn't have to pay the order. In the case of an overpayment, the sender does not have to pay the order to the extent of the overpayment. If subsection (a)(1) applies, the position of the receiving bank is comparable to that of a receiving bank that erroneously executes a payment order as stated in section 4A-303. However, failure of the sender to timely report the error is covered by section 4A-205(b) rather than by section 4A-304 which applies only to erroneous execution under section 4A-303. A receiving bank to which the risk of loss is shifted by subsection (a)(1) or (2) is entitled to recover the amount erroneously paid to the beneficiary to the extent allowed by the law of mistake and restitution. Rights of the receiving bank against the beneficiary are similar to those of a receiving bank that erroneously executes a payment order as stated in section 4A-303. Those rights are discussed in Comment 2 to section 4A-303. 

2. A security procedure established for the purpose of detecting error is not effective unless both sender and receiving bank comply with the procedure. Thus, the bank undertakes a duty of complying with the procedure for the benefit of the sender. This duty is recognized in subsection (a)(1). The loss with respect to the sender's error is shifted to the bank if the bank fails to comply with the procedure and the sender (or an agent under section 4A-206) does comply. Although the customer may have been negligent in transmitting the erroneous payment order, the loss is put on the bank on a last-clear chance theory. A similar analysis applies to subsection (b). 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 ninety (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. 

3. Section 4A-205 is subject to variation by agreement under section 4A-501. 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 the customer.