Letter of Instruction is not a UCC 4A Payment Order
by BOL Guru Sam Ott
Since Article 4A of the UCC was adopted by states across the country over the last decade, few court cases have interpreted its provisions. In one recent Arizona case, however, (Trustmark Insurance Company v. Bank One, Arizona ) the court had to decide whether written transfer instructions provided by a customer to the bank constituted a "payment order" under UCC 4A.
The customer entered into a wire transfer agreement with the bank and provided written instructions to the bank to retain a minimum daily balance in the account ($10,000) and to automatically transfer funds to the customer's account at another institution whenever a certain balance ($110,000) was reached.
As a result of operations consolidations, the bank sent all its wire transfer customers a letter that a new wire transfer agreement was required in order for the bank to ensure uninterrupted wire transfer service for the customer. The customer contended that it did not receive the letter. At any rate, the bank did not receive a completed wire transfer agreement from the customer and the bank subsequently stopped making the account transfers.
Regular account statements which showed the account balance were sent to the customer. The account balance over a one and one-half year period grew to over $19 million before the bank specifically brought the matter to the attention of the customer.
The customer filed a lawsuit claiming violations of Article 4A of the UCC as well as claims for unjust enrichment and negligence. The bank filed a motion to dismiss and argued the wire transfers were not subject to Article 4A because the letter of instruction was not a "payment order" under Article 4A. The trial court rejected the bank's motion and argument. The court did not allow the unjust enrichment claim but the UCC and negligence claims were submitted to the jury. The jury returned a verdict for the customer on the UCC claim and awarded damages of $573,197.02. The bank appealed.
The Arizona Court of Appeals reversed the lower court and held that the customer did not have a claim under Article 4A. The letter of instruction was not a "payment order" under Article 4A because it was not an order to pay a fixed or determinable amount of money to a beneficiary and was not unconditional. The bank was required to continuously monitor the account and subject the bank to a condition to payment other than the time of payment.
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