NMSA 55-4A-305. Liability for late or improper execution or failure to

55-4A-305. Liability for late or improper execution or failure to execute payment order. (a) If a funds transfer is completed but the execution of a payment order by the receiving bank in breach of Section 55-4A-302 NMSA 1978 results in delay in payment to the beneficiary, the bank is obliged to pay interest to either the originator or the beneficiary of the funds transfer for the period of delay caused by the improper execution. Except as provided in Subsection (c) of this section, additional damages are not recoverable. (b) If execution of a payment order by a receiving bank in breach of Section 55-4A- 302 NMSA 1978 results in (i) noncompletion of the funds transfer, (ii) failure to use an intermediary bank designated by the originator or (iii) issuance of a payment order that does not comply with the terms of the payment order of the originator, the bank is liable to the originator for its expenses in the funds transfer and for incidental expenses and interest losses, to the extent not covered by Subsection (a) of this section, resulting from the improper execution. Except as provided in Subsection (c) of this section, additional damages are not recoverable. (c) In addition to the amounts payable under Subsections (a) and (b) of this section, damages, including consequential damages, are recoverable to the extent provided in an express agreement of the receiving bank, evidenced by a record. (d) If a receiving bank fails to execute a payment order it was obliged by express agreement to execute, the receiving bank is liable to the sender for its expenses in the transaction and for incidental expenses and interest losses resulting from the failure to execute. Additional damages, including consequential damages, are recoverable to the extent provided in an express agreement of the receiving bank, evidenced by a record, but are not otherwise recoverable. (e) Reasonable attorney fees are recoverable if demand for compensation under Subsection (a) or (b) of this section is made and refused before an action is brought on the claim. If a claim is made for breach of an agreement under Subsection (d) of this section and the agreement does not provide for damages, reasonable attorney fees are recoverable if demand for compensation under Subsection (d) of this section is made and refused before an action is brought on the claim. (f) Except as stated in this section, the liability of a receiving bank under Subsections (a) and (b) of this section may not be varied by agreement. History: 1978 Comp., § 55-4A-305, enacted by Laws 1992, ch. 114, § 221; 2023, ch. 142, § 33. OFFICIAL COMMENTS UCC Official Comments © by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved. 1. Subsection (a) covers cases of delay in completion of a funds transfer resulting from an execution by a receiving bank in breach of Section 4A-302(a) [55-4A-302 NMSA 1978]. The receiving bank is obliged to pay interest on the amount of the order for the period of the delay. The rate of interest is stated in Section 4A-506 [55-4A-506 NMSA 1978]. With respect to wire transfers (other than ACH transactions) within the United States, the expectation is that the funds transfer will be completed the same day. In those cases, the originator can reasonably expect that the originator's account will be debited on the same day as the beneficiary's account is credited. If the funds transfer is delayed, compensation can be paid either to the originator or to the beneficiary. The normal practice is to compensate the beneficiary's bank to allow that bank to compensate the beneficiary by back-valuing the payment by the number of days of delay. Thus, the beneficiary is in the same position that it would have been in if the funds transfer had been completed on the same day. Assume on Day 1, Originator's Bank issues its payment order to Intermediary Bank which is received on that day. Intermediary Bank does not execute that order until Day 2 when it issues an order to Beneficiary's Bank which is accepted on that day. Intermediary Bank complies with subsection (a) by paying one day's interest to Beneficiary's Bank for the account of Beneficiary. 2. Subsection (b) applies to cases of breach of Section 4A-302 [55-4A-302 NMSA 1978] involving more than mere delay. In those cases the bank is liable for damages for improper execution but they are limited to compensation for interest losses and incidental expenses of the sender resulting from the breach, the expenses of the sender in the funds transfer and attorney's fees. This subsection reflects the judgement that imposition of consequential damages on a bank for commission of an error is not justified. The leading common law case on the subject of consequential damages is Evra Corp. v. Swiss Bank Corp., 673 F.2d 951 (7th Cir. 1982), in which Swiss Bank, an intermediary bank, failed to execute a payment order. Because the beneficiary did not receive timely payment the originator lost a valuable ship charter. The lower court awarded the originator $2.1 million for lost profits even though the amount of the payment order was only $27,000. The Seventh Circuit reversed, in part on the basis of the common law rule of Hadley v. Baxendale that consequential damages may not be awarded unless the defendant is put on notice of the special circumstances giving rise to them. Swiss Bank may have known that the originator was paying the shipowner for the hire of a vessel but did not know that a favorable charter would be lost if the payment was delayed. "Electronic payments are not so unusual as to automatically place a bank on notice of extraordinary consequences if such a transfer goes awry. Swiss Bank did not have enough information to infer that if it lost a $27,000 payment order it would face liability in excess of $2 million." 673 F.2d at 956. If Evra means that consequential damages can be imposed if the culpable bank has notice of particular circumstances giving rise to the damages, it does not provide an acceptable solution to the problem of bank liability for consequential damages. In the typical case transmission of the payment order is made electronically. Personnel of the receiving bank that process payment orders are not the appropriate people to evaluate the risk of liability for consequential damages in relation to the price charged for the wire transfer service. Even if notice is received by higher level management personnel who could make an appropriate decision whether the risk is justified by the price, liability based on notice would require evaluation of payment orders on an individual basis. This kind of evaluation is inconsistent with the high-speed, low-price, mechanical nature of the processing system that characterizes wire transfers. Moreover, in Evra the culpable bank was an intermediary bank with which the originator did not deal. Notice to the originator's bank would not bind the intermediary bank, and it seems impractical for the originator's bank to convey notice of this kind to intermediary banks in the funds transfer. The success of the wholesale wire transfer industry has largely been based on its ability to effect payment at low cost and great speed. Both of these essential aspects of the modern wire transfer system would be adversely affected by a rule that imposed on banks liability for consequential damages. A banking industry amicus brief in Evra stated: "Whether banks can continue to make EFT services available on a widespread basis, by charging reasonable rates, depends on whether they can do so without incurring unlimited consequential risks. Certainly, no bank would handle for $3.25 a transaction entailing potential liability in the millions of dollars." As the court in Evra also noted, the originator of the funds transfer is in the best position to evaluate the risk that a funds transfer will not be made on time and to manage that risk by issuing a payment order in time to allow monitoring of the transaction. The originator, by asking the beneficiary, can quickly determine if the funds transfer has been completed. If the originator has sent the payment order at a time that allows a reasonable margin for correcting error, no loss is likely to result if the transaction is monitored. The other published cases on this issue reach the Evra result. Central Coordinates, Inc. v. Morgan Guaranty Trust Co., 40 U.C.C. Rep. Serv. 1340 (N.Y.Sup.Ct.1985), and Gatoil (U.S.A.), Inc. v. Forest Hill State Bank, 1 U.C.C. Rep.Serv.2d 171 (D.Md.1986). Subsection (c) allows the measure of damages in subsection (b) to be increased by an express agreement of the receiving bank, evidenced by a record. An originator’s bank might be willing to assume additional responsibilities and incur additional liability in exchange for a higher fee. 3. Subsection (d) governs cases in which a receiving bank has obligated itself by express agreement to accept payment orders of a sender. In the absence of such an agreement there is no obligation by a receiving bank to accept a payment order. Section 4A-212 [55-4A-212 NMSA 1978]. The measure of damages for breach of an agreement to accept a payment order is the same as that stated in Subsection (b). As in the case of Subsection (b), additional damages, including consequential damages, may be recovered to the extent stated in an express agreement of the receiving bank, evidenced by a record. 4. Reasonable attorney’s fees are recoverable only in cases in which damages are limited to statutory damages stated in Subsection (a), (b) and (d). If additional damages are recoverable because provided for by an express agreement, evidenced by a record, attorney’s fees are not recoverable. The rationale is that there is no need for statutory attorney’s fees in the latter case, because the parties have agreed to a measure of damages which may or may not provide for attorney’s fees. 5. The effect of Subsection (f) is to prevent reduction of a receiving bank's liability under Section 4A-305 [55-4A-305 NMSA 1978]. 6. In furtherance of medium neutrality, references to a "written" agreement have been changed to refer to an agreement "evidenced by a record." PART 4 PAYMENT