Execution Of Sender’s Payment Order By Receiving Bank - - CA Commercial Law

Section § 11301

This law explains how banks deal with payment orders. When a bank gets a payment order and acts on it by sending a new order, that's called 'executing' the order. However, the bank receiving the final payment can't execute it, just accept it. The 'execution date' is when the bank can legally act on a payment order; it usually can't be before the bank actually receives the order. If the sender says when the payment should happen, the execution might need to be even earlier to meet that deadline.

(a) A payment order is “executed” by the receiving bank when it issues a payment order intended to carry out the payment order received by the bank. A payment order received by the beneficiary’s bank can be accepted but cannot be executed.

(b) “Execution date” of a payment order means the day on which the receiving bank may properly issue a payment order in execution of the sender’s order. The execution date may be determined by instruction of the sender but cannot be earlier than the day the order is received and, unless otherwise determined, is the day the order is received. If the sender’s instruction states a payment date, the execution date is the payment date or an earlier date on which execution is reasonably necessary to allow payment to the beneficiary on the payment date.

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(Added by Stats. 1990, Ch. 125, Sec. 2.)

Section § 11302

This section outlines the responsibilities of banks when they accept payment orders for funds transfers. Generally, banks must follow the sender's instructions on how to process the transfer, including which intermediary banks to use and the method of transfer. If the sender specifies that the transfer should be expedited, the bank must do so. Banks have some discretion to use alternative methods or systems if they're deemed reasonable, particularly if following specific instructions is not feasible. However, banks cannot deduct their fees from the payment amount unless specifically instructed to do so by the sender.

(a) Except as provided in subdivisions (b) to (d), inclusive, if the receiving bank accepts a payment order pursuant to subdivision (a) of Section 11209, the bank has the following obligations in executing the order:

(1) The receiving bank is obliged to issue, on the execution date, a payment order complying with the sender’s order and to follow the sender’s instructions concerning (i) any intermediary bank or funds-transfer system to be used in carrying out the funds transfer, or (ii) the means by which payment orders are to be transmitted in the funds transfer. If the originator’s bank issues a payment order to an intermediary bank, the originator’s bank is obliged to instruct the intermediary bank according to the instruction of the originator. An intermediary bank in the funds transfer is similarly bound by an instruction given to it by the sender of the payment order it accepts.

(2) If the sender’s instruction states that the funds transfer is to be carried out telephonically or by wire transfer or otherwise indicates that the funds transfer is to be carried out by the most expeditious means, the receiving bank is obliged to transmit its payment order by the most expeditious available means, and to instruct any intermediary bank accordingly. If a sender’s instruction states a payment date, the receiving bank is obliged to transmit its payment order at a time and by means reasonably necessary to allow payment to the beneficiary on the payment date or as soon thereafter as is feasible.

(b) Unless otherwise instructed, a receiving bank executing a payment order may (i) use any funds-transfer system if use of that system is reasonable in the circumstances, and (ii) issue a payment order to the beneficiary’s bank or to an intermediary bank through which a payment order conforming to the sender’s order can expeditiously be issued to the beneficiary’s bank if the receiving bank exercises ordinary care in the selection of the intermediary bank. A receiving bank is not required to follow an instruction of the sender designating a funds-transfer system to be used in carrying out the funds transfer if the receiving bank, in good faith, determines that it is not feasible to follow the instruction or that following the instruction would unduly delay completion of the funds transfer.

(c) Unless paragraph (2) of subdivision (a) applies or the receiving bank is otherwise instructed, the bank may execute a payment order by transmitting its payment order by first-class mail or by any means reasonable in the circumstances. If the receiving bank is instructed to execute the sender’s order by transmitting its payment order by a particular means, the receiving bank may issue its payment order by the means stated or by any means as expeditious as the means stated.

(d) Unless instructed by the sender, (i) the receiving bank may not obtain payment of its charges for services and expenses in connection with the execution of the sender’s order by issuing a payment order in an amount equal to the amount of the sender’s order less the amount of the charges, and (ii) may not instruct a subsequent receiving bank to obtain payment of its charges in the same manner.

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(Added by Stats. 1990, Ch. 125, Sec. 2.)

Section § 11303

This section talks about what happens when a bank makes a mistake while processing a payment order. If the bank sends more money than what was ordered or sends a duplicate payment, it has the right to get back the extra amount from the person who received it. If less money is sent, the bank can fix the mistake by sending the additional amount needed. If the correct amount isn’t sent, the bank can only get paid for the smaller amount. Additionally, if money is sent to the wrong person by mistake, the original sender and previous senders do not have to pay for the incorrect order. The bank can try to recover the payment from the mistaken recipient under rules about errors and refunds.

(a) A receiving bank that (i) executes the payment order of the sender by issuing a payment order in an amount greater than the amount of the sender’s order, or (ii) issues a payment order in execution of the sender’s order and then issues a duplicate order, is entitled to payment of the amount of the sender’s order under subdivision (c) of Section 11402 if that subdivision is otherwise satisfied. The bank is entitled to recover from the beneficiary of the erroneous order the excess payment received to the extent allowed by the law governing mistake and restitution.

(b) A receiving bank that executes the payment order of the sender by issuing a payment order in an amount less than the amount of the sender’s order is entitled to payment of the amount of the sender’s order under subdivision (c) of Section 11402 if (i) that subdivision is otherwise satisfied and (ii) the bank corrects its mistake by issuing an additional payment order for the benefit of the beneficiary of the sender’s order. If the error is not corrected, the issuer of the erroneous order is entitled to receive or retain payment from the sender of the order it accepted only to the extent of the amount of the erroneous order. This subdivision does not apply if the receiving bank executes the sender’s payment order by issuing a payment order in an amount less than the amount of the sender’s order for the purpose of obtaining payment of its charges for services and expenses pursuant to instruction of the sender.

(c) If a receiving bank executes the payment order of the sender by issuing a payment order to a beneficiary different from the beneficiary of the sender’s order and the funds transfer is completed on the basis of that error, the sender of the payment order that was erroneously executed and all previous senders in the funds transfer are not obliged to pay the payment orders they issued. The issuer of the erroneous order is entitled to recover from the beneficiary of the order the payment received to the extent allowed by the law governing mistake and restitution.

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(Added by Stats. 1990, Ch. 125, Sec. 2.)

Section § 11304

This law requires that if you've sent a payment and find out from your bank that there was a mistake in how it was handled, you need to check the information you have and let your bank know about the error within 90 days. If you miss this deadline, the bank doesn't have to pay interest on any money they might owe you for the mistake, but they can't charge you for not notifying them either.

If the sender of a payment order that is erroneously executed as stated in Section 11303 receives notification from the receiving bank that the order was executed or that the sender’s account was debited with respect to the order, the sender has a duty to exercise ordinary care to determine, on the basis of information available to the sender, that the order was erroneously executed and to notify the bank of the relevant facts within a reasonable time not exceeding 90 days after the notification from the bank was received by the sender. If the sender fails to perform that duty, the bank is not obliged to pay interest on any amount refundable to the sender under subdivision (d) of Section 11402 for the period before the bank learns of the execution error. The bank is not entitled to any recovery from the sender on account of a failure by the sender to perform the duty stated in this section.

payment order error notification from bank ordinary care execution error 90 days deadline refund interest sender's duty executed order debit notification bank's obligation execution mistake error notice bank learns error refund period interest recovery

(Added by Stats. 1990, Ch. 125, Sec. 2.)

Section § 11305

This law outlines what happens if a bank makes a mistake during a money transfer. If the bank's error causes a delay, they have to pay interest for that delay. If the transfer isn't completed or done incorrectly, the bank covers related costs and interest losses, unless an agreement says otherwise. Also, if the bank doesn't follow through on a transfer they agreed to, they owe costs and interest, with possible extra damages if promised in writing. If you ask for compensation and the bank refuses before taking legal action, you can also recover attorney’s fees. The bank's liability as described here generally can't be changed by agreement.

(a) If a funds transfer is completed but execution of a payment order by the receiving bank in breach of Section 11302 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 subdivision (c), additional damages are not recoverable.

(b) If execution of a payment order by a receiving bank in breach of Section 11302 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 subdivision (a), resulting from the improper execution. Except as provided in subdivision (c), additional damages are not recoverable.

(c) In addition to the amounts payable under subdivisions (a) and (b), 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’s fees are recoverable if demand for compensation under subdivision (a) or (b) is made and refused before an action is brought on the claim. If a claim is made for breach of an agreement under subdivision (d) and the agreement does not provide for damages, reasonable attorney’s fees are recoverable if demand for compensation under subdivision (d) 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 subdivisions (a) and (b) may not be varied by agreement.

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(Amended by Stats. 2023, Ch. 210, Sec. 89. (SB 95) Effective January 1, 2024.)