First Security Bank of New Mexico, N.A. v. Pan American Bank

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
JUN 20 2000
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

FIRST SECURITY BANK, of New
Mexico, N.A.,

Plaintiff-Counter-Defendant-
Appellant,

v. No. 98-2073

PAN AMERICAN BANK,

Defendant-Counter-Claimant-
Cross-Defendant-Appellee,

v.

1ST STATE INVESTMENT CO.;
MATHER FEDERAL CREDIT
UNION; JOHN P. McGOVERN
FOUNDATION,

Defendants-Counter-Claimants-
Cross-Claimants-Appellees,

NEW MEXICO BANKERS
ASSOCIATION,

Amicus Curiae.
 FIRST SECURITY BANK, of New
Mexico, N.A.,

Plaintiff-Counter-Defendant-
Appellee,

v. No. 98-2091

PAN AMERICAN BANK,

Defendant-Counter-Claimant-
Cross-Defendant-Appellant,

v.

1ST STATE INVESTMENT CO.;
MATHER FEDERAL CREDIT
UNION; JOHN P. McGOVERN
FOUNDATION,

Defendants-Counter-Claimants-
Cross-Claimants,

NEW MEXICO BANKERS
ASSOCIATION,

Amicus Curiae.

APPEAL FROM UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
(D.C. No. CIV-94-1464-LH)

John A. Adams, of Ray, Quinney & Nebeker, Salt Lake City, Utah, (Scott H.
Clark and Douglas M. Monson, of Ray, Quinney & Nebeker, Salt Lake City,
Utah; and Gordon S. Little, of Gordon S. Little, P.A., Albuquerque, New Mexico,
with him on the brief), for the plaintiff/counter-defendant/appellant/appellee First
Security Bank of New Mexico, N.A.

2
John G. Baugh, of Eaves, Bardacke & Baugh, P.A., Albuquerque, New Mexico,
for the defendants/counter-claimants/cross-claimants/appellees 1st State
Investment Co., and John P. McGovern Foundation.

Robert A. Johnson (Karla K. Poe with him on the brief), of Eastham, Johnson,
Monnheimer & Jontz, P.C., Albuquerque, New Mexico, for the defendant/counter-
claimant/cross-defendant/appellant/appellee Pan American Bank.

Barkley Clark, of Shook, Hardy & Bacon, L.L.P., Kansas City, Missouri, on the
brief for New Mexico Bankers Association, amicus curiae.

Before EBEL, McKAY, and BRISCOE, Circuit Judges.

BRISCOE, Circuit Judge.

First Security Bank (First Security) appeals the district court’s entry of

summary judgment in favor of Pan American Bank (Pan American), and the

court’s assessment of liability on three counterclaims . Pan American cross-

appeals the district court’s calculation of damages. We reverse the entry of

summary judgment in favor of Pan American and the judgments in favor of 1st

State Investment Co. (1st State) and John P. McGovern Foundation (McGovern).

I.

On August 3, 1994, Beatrice Stonebanks, in the name of her business

“Benjamin, Maxwell & Co. Corp.,” opened a business savings account at First

Security. She was assigned account number 033015363 and she designated the

account “Jumbo CD Account.” On the day Stonebanks opened the account, Pan

3
American wired $495,000 to First Security. The wire described the beneficiary

as First National Bank (First Security’s former title) and identified the account

number as 033015363. Pan American believed it was purchasing a CD from First

Security, not that it was transferring funds to Benjamin Maxwell which in turn

would purchase the CD.

First Security receives and processes wires by means of a semi-automated

wire processing system denominated “WireNet,” which itself interfaces with

FedWire, the Federal Reserve Bank’s wire system. An incoming wire is received

by WireNet and a hard copy of the wire instructions is automatically printed.

Without human interaction, WireNet verifies that the beneficiary account number

identified in the wire instructions matches a valid account number at First

Security. WireNet ignores any named beneficiary listed in the wire instructions.

When a wire is received, a First Security employee removes the hard copy of the

wire from the printer, goes to his or her computer terminal, and generates a copy

of the wire on a monitor by striking a key on the computer keyboard. The

employee types in a department code and then strikes two keys on the keyboard.

If the account number identified in the wire matches a valid First Security

account number, WireNet accepts the wire when the last key is struck. An error

message is displayed if the system does not accept the wire. After a wire is

processed, a bank employee customarily places a courtesy call to the beneficiary,

4
advising that the wire has been received and the funds have been credited to the

beneficiary’s account.

It is not disputed that Bobby Quintana accepted the Pan American wire and

credited the account. Although he had no actual recollection of the wire, he

conceded in his deposition that his handwritten initials in the corner of the wire

indicated he had processed it. Quintana did not make the courtesy call to

Stonebanks because he could not find a phone number for the account. He took

the hard copy of the wire to Nancy Abeyta, his supervisor, who telephoned the

branch office where Stonebanks had opened the account and asked an employee

of that office to inform the account holder that $495,000 had been wired and

deposited into the account.

On November 8, 1994, 1st State wired $99,000 to First Security. The wire

identified the beneficiary as “1st State Investment Jumbo CD” and account

number 033015363. On November 9, McGovern wired $99,000 to First Security.

The wire identified the beneficiary as “John P. McGovern Foundation” and

account number 033015363. Both 1st State and McGovern believed they were

purchasing CDs directly from First Security. Curtis Garcia, an employee of First

Security, received both wires, credited the account, and made courtesy calls to

Stonebanks.

On November 29, First Security became aware of the fraudulent scheme. It

5
immediately froze Stonebanks’ accounts, filed an interpleader action under 28

U.S.C. § 1335, and deposited $305,877.12 (the cumulative amount of

Stonebanks’ accounts with First Security) with the Registry of the United States

District Court for the District of New Mexico. All of the adverse claimants (Pan

American, 1st State, and McGovern) filed counterclaims against First Security

under N.M. Stat. Ann. § 55-4A-207, which governs a bank’s liability when a wire

transfer misdescribes a beneficiary. Under the statute, if a bank has actual

knowledge that the wire identifies two different beneficiaries (one by name and a

different one by account number), the originator of the wire may have a right to

recover from the bank. The adverse claimants here charged that First Security

had actual knowledge that the wires identified different beneficiaries but

processed the wires and released the funds to Stonebanks without further inquiry.

After discovery, the parties filed cross-motions for summary judgment.

The district court entered summary judgment in favor of Pan American on its

counterclaim against First Security. The court ruled that First Security had actual

knowledge that the Pan American wire identified two different beneficiaries.

The court based its ruling on Quintana’s deposition testimony that he knew only

savings accounts began with “0” (here, the account number in question was

033015363) and a bank (First National Bank, First Security’s former title, was

the named beneficiary) could not have a savings account. The court denied 1st

6
State’s and McGovern’s summary judgment motions, finding material issues of

fact remained. After a bench trial, the district court found First Security had

actual knowledge that the 1st State and McGovern wires identified different

beneficiaries. The court reasoned First Security obtained such knowledge when

Garcia made the customary courtesy calls.

II.

Rights and liabilities for payment orders, or wire transfers, are governed by

Article 4A of the Uniform Commercial Code, codified in New Mexico at N.M.

Stat. Ann. § 55-4A-101 et seq . Article 4A was crafted with the express purpose

of creating – in an age of increasing automation – inflexible rules of liability for

wire transfer disputes. See id. § 102, Official Comment (stating that a

“deliberate decision” was made to “use precise and detailed rules to assign

responsibility”). Such bright-line rules are necessary so that parties to the

millions of annual wire transfers may “predict risk with certainty, . . . insure

against risk, . . . adjust operational and security procedures, and . . . price funds

transfer services appropriately.” Id.

Section 55-4A-207 governs liability when a wire transfer misdescribes a

beneficiary. A misdescription occurs when a wire identifies a beneficiary by

name and account number and the name and account number identify different

persons or entities. In these circumstances, liability of a beneficiary’s bank is

7
dependent on whether the bank, with actual knowledge of the conflict, paid the

order to a person not entitled to receive the funds.

(b) If a payment order received by the beneficiary’s bank
identifies the beneficiary both by name and by an identifying or bank
account number and the name and number identify different persons,
the following rules apply:
(1) Except as otherwise provided in Subsection (c), if the
beneficiary’s bank does not know that the name and number refer to
different persons, it may rely on the number as the proper
identification of the beneficiary of the order. The beneficiary’s bank
need not determine whether the name and number refer to the same
person.
(2) If the beneficiary’s bank pays the person identified by
name or knows that the name and number identify different persons,
no person has rights as beneficiary except the person paid by the
beneficiary’s bank if that person was entitled to receive payment
from the originator of the funds transfer. If no person has rights as
beneficiary, acceptance of the order cannot occur.

Id. § 55-4A-207(b).

As noted, § 55-4A-207(b) was designed with automated wire transfer

services in mind. In a fully automated system, computer software identifies the

account number on an incoming wire, searches the bank’s system for a matching

account number, and credits the account if a match is found. Id. , Official

Comment 2. The efficiency benefits of an automated system are undermined if a

bank is not able to rely on its automated system but must independently verify

there is no conflict between a beneficiary name and an account number. Thus,

the drafters of § 55-4A-207 clarified that although it is possible for the

beneficiary’s bank to determine whether the name and number refer to the same

8
person, it “has no duty to determine whether there is a conflict and it may rely on

the number as the proper identification of the beneficiary of the order.” Id.

Significantly, the statute “is not limited to cases in which processing is done by

automated means. A bank that processes by semi-automated means or even

manually may rely on number as stated in Section 4A-207.” Id.

Although a bank has no duty to affirmatively search for conflicts between

beneficiary names and account numbers of incoming wires, it may not escape

liability if, before it pays the wire, it gains knowledge of the conflict by any

means but nonetheless pays an individual who is not entitled to receive the funds.

“Knowledge” means actual knowledge, not constructive knowledge, and is

determined at the time of payment. Id.

III.

First Security contends the district court erred in granting summary

judgment in favor of Pan American because there were genuine issues of material

fact as to whether First Security had actual knowledge that the wire identified

conflicting beneficiaries. The district court ruled that First Security through its

employee Quintana had actual knowledge at the time the Pan American wire was

paid. The first beneficiary was identified by name as First Security and the

second beneficiary was identified by account number 033015363. First Security

asserts the district court applied an improper constructive knowledge legal

9
standard and usurped the function of the factfinder by improperly weighing

conflicting evidence and drawing inferences to conclude Quintana had actual

knowledge of a discrepancy.

We review the grant of summary judgment de novo, applying the same

legal standard applied by the district court. See Wolf v. Prudential Ins. Co. , 50

F.3d 793, 796 (10th Cir. 1995). Summary judgment is appropriate “if the

pleadings, depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment as a matter of

law.” Fed. R. Civ. P. 56(c). In applying this standard, we examine the factual

record in the light most favorable to the nonmoving party. See Wolf , 50 F.3d at

796.

First Security initially argues the district court applied an improper

constructive knowledge standard rather than an actual knowledge standard in

determining First Security’s liability under § 55-4A-207. However, First Security

does not identify any statements made by the court at the summary judgment

hearing or in its ruling that support a belief that the standard was merely “should

have known.” The record and the district court’s order reflect the court’s

understanding that the statute requires actual knowledge. The court specifically

ruled “that, based upon his testimony, Mr. Quintana had actual knowledge at the

10
time he received the wire that it identified two different persons as the

beneficiary and that he could not tell who the real beneficiary was of the account

number.” App. at 1314. The court also stated that under § 55-4A-207,

“knowledge is defined . . . to mean actual knowledge.” Id.

The more difficult issue is whether the district court properly found there

were no genuine issues of material fact regarding Quintana’s actual knowledge of

the discrepancy. In support of its bench ruling, the court identified the following

purportedly undisputed material facts: (1) The Pan American wire identified two

beneficiaries on its face; (2) Quintana’s admitted usual practice was to look “at

the entire line which designated the destination for the wire transfer”; (3) at his

deposition, Quintana could not identify the beneficiary of the Pan American wire

because of the discrepancy; (4) if a wire does not indicate a name, Quintana uses

the account number to obtain a name and phone number to make a courtesy call;

(5) Quintana obtains the name and phone number before accepting the wire; (6)

Quintana could not obtain the name and phone number of the holder of account

number 033015363 so he “went to Nancy Abeyta with respect to the issue in

question”; and (7) Quintana accepted the wire and “deposited it in the account of

Benjamin Maxwell.” Id. at 1312-13. The district court did not address that

Quintana did not recall processing the Pan American wire. From these facts, the

court reasoned:

11
 I conclude that, based upon his testimony, Mr. Quintana had
actual knowledge at the time he received the wire that it identified
two different persons as the beneficiary and that he could not tell
who the real beneficiary was of the account number. Quintana stated
that the First National Bank could not be the beneficiary because it
is a savings account, which that bank could not have. He also
testified that, as he looked at it during the deposition, it raised a
question in his mind, he did not have the name to go with the
account. It’s clear also that he knew that there was a problem with
the transfer, but he did nothing to resolve that problem.
. . . [Section 4A-207] places or states the rationale for the
result which First Security would want based upon an automatic
transfer. I don’t think that’s what this is. I don’t believe it is an
automatic transfer, or an automated transfer. And in any event, I
conclude that subsection (b)(2) of Section 207 applies, and I
conclude that the beneficiary bank . . . knew that the name and
number identified different persons.

Id. at 1314-15.

First Security contends, and we agree, that in granting summary judgment

the district court ignored relevant contrary evidence in the record and

inappropriately drew inferences in favor of the moving party. “[A]t the summary

judgment stage the judge’s function is not himself to weigh the evidence and

determine the truth of the matter but to determine whether there is a genuine

issue for trial.” Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 249 (1986).

“Credibility determinations, the weighing of the evidence, and the drawing of

legitimate inferences from the facts are jury functions, not those of a judge.” Id.

at 255. “The evidence of the non-movant is to be believed, and all justifiable

inferences are to be drawn in his favor.” Id.

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 Contrary to the district court’s ruling, it is not clear that Quintana’s usual

practice was to look “at the entire line which designated the destination for the

wire transfer.” At his deposition, Quintana testified that when the bank received

a wire, he would “walk over to the printer where it printed, tear it off the printer,

walk back to my desk, and input it.” App. at 143. He indicated that as he

returned to his desk (a few feet away), he would look “to see who it’s for, that it

does have an account number and that . . . the format is correct.” Id. Quintana

conceded that it was not uncommon for numerous wires to be waiting at the

printer and he “usually just [read] the top one” as he returned to his desk. Id. at

146. There is no evidence in the record to suggest, and Quintana did not recall,

that the Pan American wire was the only wire at the printer when Quintana

retrieved it or, if it was not the only wire, if the Pan American wire was on top.

Because one could reasonably infer that Quintana did not read the Pan American

wire, the district court erred in drawing the inference in favor of Pan American,

the moving party. See Dayton Hudson Corp. v. Macerich Real Estate Co. , 812

F.2d 1319, 1322-23 (10th Cir. 1987) (“Where different, ultimate inferences may

be drawn from the evidence presented by the parties, the case is not appropriate

for summary judgment.”)

Even if Quintana’s deposition testimony could be read to compel the

conclusion that he looked at the Pan American wire, another impermissible

13
inference is required to conclude he actually knew of the discrepancy. Liability

attaches only if Quintana actually knew the named beneficiary and the

beneficiary account number identified different persons. See N.M. Stat. Ann. §

55-4A-207, Official Comment 2. A rational factfinder could infer that Quintana

read the wire but did not discover the discrepancy. Quintana testified that if he

had discovered a discrepancy, he would not have paid the wire without obtaining

the account holder’s name and phone number from the computer system and

phoning to verify that the account holder was expecting a wire. 1
App. at 144.

Yet the only indication that Quintana did in fact attempt to obtain the account

holder’s name and phone number before inputting the Pan American wire was his

statement that upon discovering a discrepancy he normally would have followed

such a procedure. As noted, Quintana had no actual recollection either way with

respect to the Pan American wire.

Moreover, the deposition testimony of Nancy Abeyta, Quintana’s

1
The district court apparently relied on this testimony to conclude that
Quintana typically obtained the name and phone number of the account holder
and made a courtesy call before processing a wire. We read Quintana’s
deposition testimony to say that he would follow this process only if he
discovered a discrepancy. As for his routine practice in processing a typical
wire, his testimony is conflicting and ambiguous. Quintana testified at one point
that when he did not notice a discrepancy, he obtained the name and phone
number and made the call as he processed the wire; at another point he testified
that he obtained the name and phone number and made the courtesy call after he
processed the wire. See App. at 146, 624.

14
supervisor, suggested that Quintana inputted the wire before the courtesy call was

made, which is inconsistent with Quintana’s self-described process upon

discovery of a discrepancy. Abeyta testified that Quintana brought the wire to

her because he could not locate a phone number to make the courtesy call.

Abeyta testified that First Security had not entered the information into its

computer system because it was a new account. When Abeyta received the wire,

both Quintana’s and Garcia’s initials appeared in the corner of the wire,

indicating the wire had been inputted by Quintana and reviewed by Garcia. From

this evidence, a rational jury could infer that Quintana received the wire and

processed it without noticing a conflict and then took the wire to Abeyta so she

could track down the account name and phone number and make the courtesy

call.

Material factual disputes remain as to (1) whether Quintana looked at the

beneficiary line of the Pan American wire; (2) if so, whether he noticed the

beneficiary name and number were in conflict; and (3) if the wire was paid before

or after Quintana or any other First Security employee obtained actual knowledge

of any such conflict. The district court erred in granting summary judgment in

favor of Pan American.

IV.

First Security contends the district court erred in concluding that payment

15
of the 1st State and McGovern wires did not occur when the account was credited

and the funds were made available for withdrawal, but when the courtesy phone

calls were made to Stonebanks. The court held the wires were paid “no earlier

than the time at which [a First Security] employee notified Ms. Stonebanks of

receipt of each of those orders.” App. at 951. The court found that merely

crediting her account did not constitute making the funds otherwise available to

her, despite uncontradicted evidence that the beneficiary had immediate access to

the funds as soon as the wires were processed. Id. We review de novo the

district court’s interpretation of N.M. Stat. Ann. § 55-4A-405, which governs

payment of wire transfers. See Horace Mann Ins. Co. v. Johnson , 953 F.2d 575,

576 (10th Cir. 1991) (reviewing district court’s interpretation and application of

state law de novo).

As noted, the presence or absence of actual knowledge is determined when

the wire transfer is paid. See N.M. Stat. Ann. § 55-4A-207, Official Comment 2.

Payment of a wire transfer to a beneficiary is a term of art governed by N.M.

Stat. Ann. § 55-4A-405(a), which provides:

If the beneficiary’s bank credits an account of the beneficiary of a
payment order, payment of the bank’s obligation . . . occurs when
and to the extent (i) the beneficiary is notified of the right to
withdraw the credit, (ii) the bank lawfully applies the credit to a debt
of the beneficiary, or (iii) funds with respect to the order are

16
 otherwise made available to the beneficiary by the bank. 2

It is clear from the plain language of the statute that crediting an account is not

always sufficient to constitute payment. It is not so clear that crediting an

account is never sufficient to constitute payment. In this respect, First Security

asserts that crediting a beneficiary’s account may constitute payment under the

“otherwise made available” prong of the statute if, when the account is credited,

the beneficiary may immediately withdraw the credited funds.

In rejecting First Security’s contention, the district court relied on § 55-

4A-405, Official Comment 1, and on a hypothetical found at 3 James J. White

and Robert S. Summers, Uniform Commercial Code , § 23-4, at 33 (4th ed. 1995).

At first glance, it appears these authorities considered and rejected First

Security’s position.

This section defines when the beneficiary’s bank pays the
beneficiary and when the obligation of the beneficiary’s bank under
Section 4A-404 . . . to pay the beneficiary is satisfied. In almost all
cases the bank will credit an account of the beneficiary when it
receives a payment order. In the typical case the beneficiary is paid
when the beneficiary is given notice of the right to withdraw the
credit.

N.M. Stat. Ann. 55-4A-405, Official Comment 1. Similar reasoning is applied in

2
It is important to note that acceptance of the wire by the beneficiary’s
bank is different than payment of the wire by the beneficiary’s bank to the
beneficiary. Acceptance is governed by N.M. Stat. Ann. § 55-4A-209; payment
is governed by N.M. Stat. Ann. §§ 55-4A-404 & 405. Acceptance and payment
may (or may not) occur at the same time under these sections.

17
resolving the following hypothetical:

(i) 9:00 A.M., Beneficiary’s bank receives payment order
directing Beneficiary’s bank to credit Beneficiary’s account for $1M.
(ii) 9:10 A.M., Beneficiary’s bank credits Beneficiary’s
account.
(iii) 9:15 A.M., Beneficiary’s bank notifies Beneficiary of the
right to withdraw credit.
Barring a deposit contract which states otherwise . . .
acceptance occurs at 9:15 A.M.

White & Summers, supra , at 33.

At first glance, these explanations seemingly contemplate the situation

presented here – a bank credit to a beneficiary’s account followed by notice to

the account holder. A closer look, however, reveals at least one important

difference. In this case, unlike the above examples, First Security notified

Stonebanks not to inform her she had the right to withdraw the credited funds (as

envisioned by 55-4A-405(a)(i)), but simply to inform her the wire had been

received and credited to her account (as required by N.M. Stat. Ann. § 55-4A-

404(b)). Aside from this factual distinction, the above comments are ambiguous

when considered in context and in conjunction with the Expedited Funds

Availability Act. As First Security notes, neither Official Comment 1 nor the

White & Summers hypothetical indicates if the bank crediting the beneficiary’s

account makes the funds immediately available to the beneficiary or places a hold

on the funds for a specified period of time, as permitted by federal law. The

Expedited Funds Availability Act and its accompanying regulations require banks

18
to make available to an account holder funds received by wire transfer no later

than the next business day following the business day on which the transfer was

received. 12 C.F.R. § 229.10(b).

We cannot ascertain from the plain statutory language why funds are not

“otherwise made available” to a beneficiary and why payment does not occur

when a beneficiary’s bank credits a beneficiary’s account and immediately makes

the funds available to the beneficiary. See Tony M. Davis, Comparing Article 4A

With Existing Case Law on Funds Transfers: A Series of Case Studies , 42 Ala.

L. Rev. 823, 873 (1991) (concluding that when wired funds were placed in

beneficiary’s account and immediately made available to beneficiary, bank “paid”

beneficiary under 4A-405(a)). The drafters of Article 4A intended that payment

coincide with the beneficiary’s receipt of a benefit from the payment order. See

N.M. Stat. Ann. § 55-4A-405, Official Comment 1. Allowing the beneficiary the

right to withdraw certainly qualifies as a benefit to the beneficiary, even if the

right is not immediately exercised. As White & Summers stated in their

discussion of acceptance and payment under Article 4A, “[f]unds are typically

‘made available’ to a beneficiary by allowing the beneficiary the right to

withdraw.” White & Summers, supra , § 23-4, at 32.

This interpretation gives effect to all of the provisions of § 55-4A-405(a)

without rendering any of those provisions redundant or equating the mere

19
crediting of an account with payment. A bank that credits a beneficiary’s account

but holds withdrawal of funds pending notice of the credit to the beneficiary,

application of the funds to a debt of the beneficiary, actual withdrawal by the

beneficiary, or the mere passage of time does not bestow a benefit upon a

beneficiary. The beneficiary has obtained neither a benefit from the transfer nor

a right to use the funds. However, a bank that makes wire funds available

simultaneously with an account credit bestows an immediate benefit upon the

beneficiary, regardless of any subsequent notice to the beneficiary of the credit.

1st State and McGovern contend the “credits an account” language in § 55-

4A-405(a) was intended to reach both credits in which funds are immediately

made available to the beneficiary and credits in which funds are held until the

next business day. If true, crediting an account, regardless of the consequences,

is alone insufficient to constitute payment. We reject this contention, which

gives little meaning to subsection (a)(iii) (which provides payment occurs when

and to the extent “funds with respect to the order are otherwise made available to

the beneficiary by the bank”). If releasing funds to a beneficiary when an

account is credited does not constitute making funds available to the beneficiary,

we are hard pressed to concoct a scenario that does. The only indication given by

the drafters of Article 4A as to the meaning of (a)(iii) is found in the following

comment:

20
 [T]he beneficiary’s bank can accept a payment order by paying a
beneficiary. In the normal case of crediting an account of the
beneficiary, payment occurs when the beneficiary is given notice of
the right to withdraw the credit, the credit is applied to a debt of the
beneficiary, or “funds with respect to the order” are otherwise made
available to the beneficiary. The quoted phrase covers cases in
which funds are made available to the beneficiary as a result of
receipt of a payment order for the benefit of the beneficiary but the
release of funds is not expressed as payment of the order. For
example, the beneficiary’s bank might express a release of funds
equal to the amount of the order as a “loan” that will be
automatically repaid when the beneficiary’s bank receives payment
by the sender of the order. If the release of funds is designated as a
loan pursuant to a routine practice of the bank, the release is
conditional payment of the order rather than a loan, particularly if
normal incidents of a loan such as the signing of a loan agreement or
note and the payment of interest are not present. Such a release of
funds is payment to the beneficiary under Section 4A-405(a). Under
Section 4A-405(c) the bank cannot recover the money from the
beneficiary if the bank does not receive payment from the sender of
the payment order that is accepted.

N.M. Stat. Ann. § 55-4A-209, Official Comment 5.

The comment suggests that payment under the “otherwise made available”

prong occurs where a beneficiary’s bank credits the beneficiary’s account and

releases funds to the beneficiary on the condition that the funds are a loan.

Because the bank has accepted the order, § 55-4A-405(c) not only obligates the

bank to pay the beneficiary regardless of whether or not the release of funds is

characterized as a loan, but precludes the bank from later collecting the funds

from the beneficiary if the sender’s bank does not pay. In other words, such

“conditional” payments by the beneficiary’s bank to the beneficiary are not

21
enforceable. As relevant here, however, the critical point is that under the

scenario constructed in the comment, payment is effective even if subsequent

notice is not given to the beneficiary. If, “pursuant to a routine practice of the

bank,” the funds are released when the beneficiary’s account is credited, the

situation is no different than the situation here. An order is received, the

beneficiary’s account is credited, the funds are released to the beneficiary and

made available for immediate withdrawal, and payment occurs. 3

1st State and McGovern also argue that a beneficiary does not receive a

benefit from the credit, even if the funds immediately are made available, unless

the beneficiary has knowledge of the credit. This ignores the fact that by the

3
Not surprisingly, Comment 5 is susceptible to a different interpretation.
The comment explains that the first clause of subsection (a)(iii) (“funds with
respect to the order”) “covers cases in which funds are made available to the
beneficiary as a result of receipt of a payment order for the benefit of the
beneficiary but the release of funds is not expressed as payment of the order.”
Here, the release of funds by First Security was expressed as payment of the
order. Thus, it could be argued that subsection (a)(iii) applies only to releases of
funds by a bank where the bank mischaracterizes the release of funds as a loan or
other debt instrument to avoid Article 4A’s risk of loss provisions regarding
acceptance and payment. We do not believe such a narrow interpretation of
subsection (a)(iii) is appropriate. First, the fact that the subsection “covers”
cases where funds are made available to the beneficiary but not expressed as
payment of the transfer is no indication that the subsection only covers such
cases. The hypothetical in the comment depicts one of many situations in which
funds otherwise could be made available to the beneficiary of a wire transfer.
Second, there is no substantive distinction between making funds available to the
beneficiary under the guise of a loan (which is considered payment of the order
and not a loan in any event) and making funds available to the beneficiary with
the express concession that release of the funds constitutes payment of the order.

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terms of § 55-4A-405 notice is merely one of the methods by which payment

occurs. See 6A William D. Hawkland & Lary Lawrence, Uniform Commercial

Code Series § 4A-405:01 (1993 & Supp. 1999) (“Subsection 4A-405(a)(iii)

discharge of the subsection 4A-404(a) obligation by making the funds otherwise

available to the beneficiary does not literally require the beneficiary bank to give

notice to the beneficiary, unlike subsection 4A-405(a)(i).”) Notice (and thus

knowledge of the credit on the part of the beneficiary) is not required to

effectuate payment if the beneficiary gains a benefit by having the funds applied

to a debt of the beneficiary or if the funds otherwise are made available to the

beneficiary. Moreover, whether funds are immediately available to an account

holder following a credit is generally not a matter within the scope of Article 4A,

but, assuming compliance with other federal regulations, is a matter of contract

between the beneficiary’s bank and the beneficiary. Hence, a beneficiary will

have knowledge beforehand that any time the beneficiary’s account is credited

the funds are immediately available for use.

As 1st State and McGovern point out, N.M. Stat. Ann. § 55-4A-404(b)

specifically requires that a bank “notify the beneficiary of receipt of the order

before midnight of the next funds-transfer business day following the payment

date.” Notification under 404(b) is unrelated to the separate provisions of § 55-

4A-405 governing payment. As such, while the notice required by 404(b) may

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also constitute payment under 405(a)(i), it is not the event that constitutes

payment if, before notice is given, either of the events described in 405(a)(ii) and

(iii) have occurred. As previously noted, our review of the record persuades us

that First Security’s “courtesy calls” were intended to satisfy the notice required

by 404(b), rather than as a final step to effective payment under 405(a)(i).

In summary, we hold that payment may occur under § 55-4A-405(a)(iii)

when a beneficiary’s account is credited and the funds immediately are made

available to the beneficiary. This interpretation is consistent with the plain

language of 405(a) and gives effect to all of its provisions. 4

V.

We REVERSE the entry of summary judgment in favor of Pan American.

We REVERSE the district court’s legal ruling that payment does not occur under

N.M. Stat. Ann. § 55-4A-405(a)(iii) when a beneficiary’s account is credited and

the funds immediately are made available for withdrawal by the beneficiary and

REMAND to the district court for further proceedings. We decline to consider

Pan American’s cross-appeal regarding damages as the issues may not arise on

remand.

4
We have found only one case on the precise issue before this court. In
Aleo Int’l, Ltd. v. Citibank , 612 N.Y.S. 2d 540, 541 (1994), a New York trial
court ruled that payment occurred upon credit to an account. The court did not
explain its reasoning.

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