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Phil & Kathy's Inc. v. Safra National Bank of New York

Phil & Kathy's gave a $1.5 million payment order to Harris Trust and Savings Bank. The order named a beneficiary that was not identifiable as a customer at Safra Bank, and Safra did not accept the order. The intended beneficiary contacted Phil & Kathy's with a new beneficiary name. Phil & Kathy's issued a new payment order with the new beneficiary name, which Safra accepted and credited to the proper beneficiary. Harris Trust also contacted Safra to amend the first order. Safra complied, and accepted the amended order, crediting it to the intended beneficiary (which now had received $3 million). Phil & Kathy's sued Safra for return of the extra $1.5 million and lost, both in the district court and on appeal.

The case turns on the ability of the beneficiary's bank to accept an amended payment order, under § 4-A-211(2) of the New York UCC (numbered as § 4A-211(a) in some states' UCC version). There's a clear message here, however, in Harris Trust's mis-steps in this case: Decide how you'll fix a problem like the $1.5 million wire instruction error, and stick to the plan. Don't try two different approaches, or you risk creating a bigger problem. Good case management processes could have prevented Harris Trust's major mistake.

The case does not discuss whether Phil & Kathy's has other rights to recover the extra payment directly from the beneficiary or from its own bank for its error.

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