Appellant TME made a wire transfer for $1 million through its bank, Pacific Business Bank, to an account Vieri Gaines Guadagni (Gaines) maintained at Norwest Bank. Although the appellant believed the account specified in its wire transfer was a trust account for the benefit of appellant James McDaniel and designated in the wire transfer “Vieri Gaines Guadagni, Trustee fbo [for the benefit of] McDaniel” as the named beneficiary, the account was in fact the joint personal checking account of Gaines and his wife, Janet Guadagni. Norwest Bank’s wire transfer system would not reject an incoming wire transfer if there was a discrepancy between the designated beneficiary’s name and account number and would process the transaction so long as the account number was valid.

UCC § 4A-207(b), provides a “safe harbor” for a beneficiary’s bank that relies on the account number specified in a wire transfer order to identify the beneficiary of the order. The safe-harbor provision applies so long as the bank does not know that the beneficiary’s name and account number refer to different persons. To “know” means to have actual knowledge, and the beneficiary’s bank has no duty to determine whether the name and account number specified in the wire transfer refer to the same person.

CASE QUESTIONS

1. Who faces liability in this scenario?

2. Do you agree with the effects of UCC § 4A-207? Why or why not?