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Key: (1) language to be deleted (2) new language

  

                         Laws of Minnesota 1990 

                        CHAPTER 582-S.F.No. 2064 
           An act relating to commercial transactions; adopting 
          an article of the uniform commercial code that governs 
          funds transfers; amending Minnesota Statutes 1989 
          Supplement, section 336.1-105; proposing coding for 
          new law in Minnesota Statutes, chapter 336. 
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 

                                ARTICLE 1

                               ARTICLE 4A

                            FUNDS TRANSFERS

                                 PART 1

                     SUBJECT MATTER AND DEFINITIONS
    Section 1.  [336.4A-101] [SHORT TITLE.] 
    This article may be cited as Uniform Commercial Code--Funds 
Transfers. 
    Sec. 2.  [336.4A-102] [SUBJECT MATTER.] 
    Except as otherwise provided in section 336.4A-108, this 
article applies to funds transfers defined in section 336.4A-104.
    Sec. 3.  [336.4A-103] [PAYMENT ORDER-DEFINITIONS.] 
    (a) In this article: 
    (1) "Payment order" means an instruction of a sender to a 
receiving bank, transmitted orally, electronically, or in 
writing, to pay, or to cause another bank to pay, a fixed or 
determinable amount of money to a beneficiary if: 
    (i) the instruction does not state a condition to payment 
to the beneficiary other than time of payment, 
    (ii) the receiving bank is to be reimbursed by debiting an 
account of, or otherwise receiving payment from, the sender, and 
    (iii) the instruction is transmitted by the sender directly 
to the receiving bank or to an agent, funds-transfer system, or 
communication system for transmittal to the receiving bank. 
    (2) "Beneficiary" means the person to be paid by the 
beneficiary's bank. 
    (3) "Beneficiary's bank" means the bank identified in a 
payment order in which an account of the beneficiary is to be 
credited pursuant to the order or which otherwise is to make 
payment to the beneficiary if the order does not provide for 
payment to an account. 
    (4) "Receiving bank" means the bank to which the sender's 
instruction is addressed. 
    (5) "Sender" means the person giving the instruction to the 
receiving bank. 
    (b) If an instruction complying with subsection (a)(1) is 
to make more than one payment to a beneficiary, the instruction 
is a separate payment order with respect to each payment. 
    (c) A payment order is issued when it is sent to the 
receiving bank. 
    Sec. 4.  [336.4A-104] [FUNDS TRANSFER-DEFINITIONS.] 
    In this article: 
    (a) "Funds transfer" means the series of transactions, 
beginning with the originator's payment order, made for the 
purpose of making payment to the beneficiary of the order.  The 
term includes any payment order issued by the originator's bank 
or an intermediary bank intended to carry out the originator's 
payment order.  A funds transfer is completed by acceptance by 
the beneficiary's bank of a payment order for the benefit of the 
beneficiary of the originator's payment order. 
    (b) "Intermediary bank" means a receiving bank other than 
the originator's bank or the beneficiary's bank. 
    (c) "Originator" means the sender of the first payment 
order in a funds transfer. 
    (d) "Originator's bank" means (i) the receiving bank to 
which the payment order of the originator is issued if the 
originator is not a bank, or (ii) the originator if the 
originator is a bank. 
    Sec. 5.  [336.4A-105] [OTHER DEFINITIONS.] 
    (a) In this article: 
    (1) "Authorized account" means a deposit account of a 
customer in a bank designated by the customer as a source of 
payment of payment orders issued by the customer to the bank.  
If a customer does not so designate an account, any account of 
the customer is an authorized account if payment of a payment 
order from that account is not inconsistent with a restriction 
on the use of that account. 
    (2) "Bank" means a person engaged in the business of 
banking and includes a savings bank, savings and loan 
association, credit union, and trust company.  A branch or 
separate office of a bank is a separate bank for purposes of 
this article. 
    (3) "Customer" means a person, including a bank, having an 
account with a bank or from whom a bank has agreed to receive 
payment orders. 
    (4) "Funds-transfer business day" of a receiving bank means 
the part of a day during which the receiving bank is open for 
the receipt, processing, and transmittal of payment orders and 
cancellations and amendments of payment orders. 
    (5) "Funds-transfer system" means a wire transfer network, 
automated clearing house, or other communication system of a 
clearing house or other association of banks through which a 
payment order by a bank may be transmitted to the bank to which 
the order is addressed. 
    (6) "Good faith" means honesty in fact and the observance 
of reasonable commercial standards of fair dealing. 
    (7) "Prove" with respect to a fact means to meet the burden 
of establishing the fact (section 336.1-201(8)). 
    (b) Other definitions applying to the article and the 
sections in which they appear: 
     "Acceptance." Section 336.4A-209. 
    "Beneficiary." Section 336.4A-103. 
    "Beneficiary's bank." Section 336.4A-103. 
    "Executed." Section 336.4A-301. 
    "Execution date." Section 336.4A-301. 
    "Funds transfer." Section 336.4A-104. 
    "Funds-transfer system rule." Section 336.4A-501. 
    "Intermediary bank." Section 336.4A-104. 
    "Originator." Section 336.4A-104. 
    "Originator's bank." Section 336.4A-104. 
    "Payment by beneficiary's bank to beneficiary." Section 
336.4A-405. 
    "Payment by originator to beneficiary." Section 336.4A-406. 
    "Payment by sender to receiving bank." Section 336.4A-403. 
    "Payment date." Section 336.4A-401. 
    "Payment order." Section 336.4A-103. 
    "Receiving bank." Section 336.4A-103. 
    "Security procedure." Section 336.4A-201. 
    "Sender." Section 336.4A-103. 
    (c) The following definitions in article 4 apply to this 
article: 
     "Clearing house." Section 336.4-104. 
     "Item." Section 336.4-104. 
     "Suspends payments." Section 336.4-104. 
    (d) In addition, sections 336.1-101 to 336.1-209 contain 
general definitions and principles of construction and 
interpretation applicable throughout this article. 
    Sec. 6.  [336.4A-106] [TIME PAYMENT ORDER IS RECEIVED.] 
    (a) The time of receipt of a payment order or communication 
canceling or amending a payment order is determined by the rules 
applicable to receipt of a notice stated in section 
336.1-201(27).  A receiving bank may fix a cut-off time or times 
on a funds-transfer business day for the receipt and processing 
of payment orders and communications canceling or amending 
payment orders.  Different cut-off times may apply to payment 
orders, cancellations, or amendments, or to different categories 
of payment orders, cancellations, or amendments.  A cut-off time 
may apply to senders generally or different cut-off times may 
apply to different senders or categories of payment orders.  If 
a payment order or communication canceling or amending a payment 
order is received after the close of a funds-transfer business 
day or after the appropriate cut-off time on a funds-transfer 
business day, the receiving bank may treat the payment order or 
communication as received at the opening of the next 
funds-transfer business day. 
    (b) If this article refers to an execution date or payment 
date or states a day on which a receiving bank is required to 
take action, and the date or day does not fall on a 
funds-transfer business day, the next day that is a 
funds-transfer business day is treated as the date or day 
stated, unless the contrary is stated in this article. 
    Sec. 7.  [336.4A-107] [FEDERAL RESERVE REGULATIONS AND 
OPERATING CIRCULARS.] 
    Regulations of the Board of Governors of the Federal 
Reserve System and operating circulars of the Federal Reserve 
Banks supersede any inconsistent provision of this article to 
the extent of the inconsistency. 
    Sec. 8.  [336.4A-108] [EXCLUSION OF CONSUMER TRANSACTIONS 
GOVERNED BY FEDERAL LAW.] 
    This article does not apply to a funds transfer any part of 
which is governed by the Electronic Fund Transfer Act of 1978 
(Title XX, Public Law 95-630, 92 Stat. 3728, 15 U.S.C. Section 
1693 et seq.) as amended from time to time. 

                                 PART 2

                 ISSUE AND ACCEPTANCE OF PAYMENT ORDER
    Sec. 9.  [336.4A-201] [SECURITY PROCEDURE.] 
    "Security procedure" means a procedure established by 
agreement of a customer and a receiving bank for the purpose of 
(i) verifying that a payment order or communication amending or 
canceling a payment order is that of the customer, or (ii) 
detecting error in the transmission or the content of the 
payment order or communication.  A security procedure may 
require the use of algorithms or other codes, identifying words 
or numbers, encryption, callback procedures, or similar security 
devices.  Comparison of a signature on a payment order or 
communication with an authorized specimen signature of the 
customer is not by itself a security procedure. 
    Sec. 10.  [336.4A-202] [AUTHORIZED AND VERIFIED PAYMENT 
ORDERS.] 
    (a) A payment order received by the receiving bank is the 
authorized order of the person identified as sender if that 
person authorized the order or is otherwise bound by it under 
the law of agency. 
    (b) If a bank and its customer have agreed that the 
authenticity of payment orders issued to the bank in the name of 
the customer as sender will be verified pursuant to a security 
procedure, a payment order received by the receiving bank is 
effective as the order of the customer, whether or not 
authorized, if (i) the security procedure is a commercially 
reasonable method of providing security against unauthorized 
payment orders, and (ii) the bank proves that it accepted the 
payment order in good faith and in compliance with the security 
procedure and any written agreement or instruction of the 
customer restricting acceptance of payment orders issued in the 
name of the customer.  The bank is not required to follow an 
instruction that violates a written agreement with the customer 
or notice of which is not received at a time and in a manner 
affording the bank a reasonable opportunity to act on it before 
the payment order is accepted. 
    (c) Commercial reasonableness of a security procedure is a 
question of law to be determined by considering the wishes of 
the customer expressed to the bank, the circumstances of the 
customer known to the bank, including the size, type, and 
frequency of payment orders normally issued by the customer to 
the bank, alternative security procedures offered to the 
customer, and security procedures in general use by customers 
and receiving banks similarly situated.  A security procedure is 
deemed to be commercially reasonable if (i) the security 
procedure was chosen by the customer after the bank offered, and 
the customer refused, a security procedure that was commercially 
reasonable for that customer, and (ii) the customer expressly 
agreed in writing to be bound by any payment order, whether or 
not authorized, issued in its name and accepted by the bank in 
compliance with the security procedure chosen by the customer. 
    (d) The term "sender" in this article includes the customer 
in whose name a payment order is issued if the order is the 
authorized order of the customer under subsection (a), or it is 
effective as the order of the customer under subsection (b). 
    (e) This section applies to amendments and cancellations of 
payment orders to the same extent it applies to payment orders. 
    (f) Except as provided in this section and in section 
336.4A-203(a)(1), rights and obligations arising under this 
section or section 336.4A-203 may not be varied by agreement. 
    Sec. 11.  [336.4A-203] [UNENFORCEABILITY OF CERTAIN 
VERIFIED PAYMENT ORDERS.] 
    (a) If an accepted payment order is not, under section 
336.4A.202(a), an authorized order of a customer identified as 
sender, but is effective as an order of the customer pursuant to 
section 336.4A.202(b), the following rules apply: 
    (1) By express written agreement, the receiving bank may 
limit the extent to which it is entitled to enforce or retain 
payment of the payment order. 
    (2) The receiving bank is not entitled to enforce or retain 
payment of the payment order if the customer proves that the 
order was not caused, directly or indirectly, by a person (i) 
entrusted at any time with duties to act for the customer with 
respect to payment orders or the security procedure, or (ii) who 
obtained access to transmitting facilities of the customer or 
who obtained, from a source controlled by the customer and 
without authority of the receiving bank, information 
facilitating breach of the security procedure, regardless of how 
the information was obtained or whether the customer was at 
fault.  Information includes any access device, computer 
software, or the like. 
    (b) This section applies to amendments of payment orders to 
the same extent it applies to payment orders. 
    Sec. 12.  [336.4A-204] [REFUND OF PAYMENT AND DUTY OF 
CUSTOMER TO REPORT WITH RESPECT TO UNAUTHORIZED PAYMENT ORDER.] 
    (a) If a receiving bank accepts a payment order issued in 
the name of its customer as sender which is (i) not authorized 
and not effective as the order of the customer under section 
336.4A-202, or (ii) not enforceable, in whole or in part, 
against the customer under section 336.4A-203, the bank shall 
refund any payment of the payment order received from the 
customer to the extent the bank is not entitled to enforce 
payment and shall pay interest on the refundable amount 
calculated from the date the bank received payment to the date 
of the refund.  However, the customer is not entitled to 
interest from the bank on the amount to be refunded if the 
customer fails to exercise ordinary care to determine that the 
order was not authorized by the customer and to notify the bank 
of the relevant facts within a reasonable time not exceeding 90 
days after the date the customer received notification from the 
bank that the order was accepted or that the customer's account 
was debited with respect to the order.  The bank is not entitled 
to any recovery from the customer on account of a failure by the 
customer to give notification as stated in this section. 
    (b) Reasonable time under subsection (a) may be fixed by 
agreement as stated in section 336.1-204(1), but the obligation 
of a receiving bank to refund payment as stated in subsection 
(a) may not otherwise be varied by agreement. 
    Sec. 13.  [336.4A-205] [ERRONEOUS PAYMENT ORDERS.] 
    (a) If an accepted payment order was transmitted pursuant 
to a security procedure for the detection of error and the 
payment order (i) erroneously instructed payment to a 
beneficiary not intended by the sender, (ii) erroneously 
instructed payment in an amount greater than the amount intended 
by the sender, or (iii) was an erroneously transmitted duplicate 
of a payment order previously sent by the sender, the following 
rules apply: 
    (1) If the sender proves that the sender or a person acting 
on behalf of the sender pursuant to section 336.4A-206 complied 
with the security procedure and that the error would have been 
detected if the receiving bank had also complied, the sender is 
not obliged to pay the order to the extent stated in paragraphs 
(2) and (3). 
    (2) If the funds transfer is completed on the basis of an 
erroneous payment order described in clause (i) or (iii) of 
subsection (a), the sender is not obliged to pay the order and 
the receiving bank is entitled to recover from the beneficiary 
any amount paid to the beneficiary to the extent allowed by the 
law governing mistake and restitution. 
    (3) If the funds transfer is completed on the basis of a 
payment order described in clause (ii) of subsection (a), the 
sender is not obliged to pay the order to the extent the amount 
received by the beneficiary is greater than the amount intended 
by the sender.  In that case, the receiving bank is entitled to 
recover from the beneficiary the excess amount received to the 
extent allowed by the law governing mistake and restitution. 
    (b) If (i) the sender of an erroneous payment order 
described in subsection (a) is not obliged to pay all or part of 
the order, and (ii) the sender receives notification from the 
receiving bank that the order was accepted by the bank or that 
the sender's account was debited with respect to the order, the 
sender has a duty to exercise ordinary care, on the basis of 
information available to the sender, to discover the error with 
respect to the order and to advise the bank of the relevant 
facts within a reasonable time, not exceeding 90 days, after the 
bank's notification was received by the sender.  If the bank 
proves that the sender failed to perform that duty, the sender 
is liable to the bank for the loss the bank proves it incurred 
as a result of the failure, but the liability of the sender may 
not exceed the amount of the sender's order. 
    (c) This section applies to amendments to payment orders to 
the same extent it applies to payment orders. 
    Sec. 14.  [336.4A-206] [TRANSMISSION OF PAYMENT ORDER 
THROUGH FUNDS-TRANSFER OR OTHER COMMUNICATION SYSTEM.] 
    (a) If a payment order addressed to a receiving bank is 
transmitted to a funds-transfer system or other third-party 
communication system for transmittal to the bank, the system is 
deemed to be an agent of the sender for the purpose of 
transmitting the payment order to the bank.  If there is a 
discrepancy between the terms of the payment order transmitted 
to the system and the terms of the payment order transmitted by 
the system to the bank, the terms of the payment order of the 
sender are those transmitted by the system.  This section does 
not apply to a funds-transfer system of the Federal Reserve 
Banks. 
    (b) This section applies to cancellations and amendments of 
payment orders to the same extent it applies to payment orders. 
    Sec. 15.  [336.4A-207] [MISDESCRIPTION OF BENEFICIARY.] 
    (a) Subject to subsection (b), if, in a payment order 
received by the beneficiary's bank, the name, bank account 
number, or other identification of the beneficiary refers to a 
nonexistent or unidentifiable person or account, no person has 
rights as a beneficiary of the order and acceptance of the order 
cannot occur. 
    (b) If a payment order received by the beneficiary's bank 
identifies the beneficiary both by name and by an identifying or 
bank account number and the name and number identify different 
persons, the following rules apply: 
    (1) Except as otherwise provided in subsection (c), if the 
beneficiary's bank does not know that the name and number refer 
to different persons, it may rely on the number as the proper 
identification of the beneficiary of the order.  The 
beneficiary's bank need not determine whether the name and 
number refer to the same person. 
    (2) If the beneficiary's bank pays the person identified by 
name or knows that the name and number identify different 
persons, no person has rights as beneficiary except the person 
paid by the beneficiary's bank if that person was entitled to 
receive payment from the originator of the funds transfer.  If 
no person has rights as beneficiary, acceptance of the order 
cannot occur. 
     (c) If (i) a payment order described in subsection (b) is 
accepted, (ii) the originator's payment order described the 
beneficiary inconsistently by name and number, and (iii) the 
beneficiary's bank pays the person identified by number as 
permitted by subsection (b)(1), the following rules apply: 
     (1) If the originator is a bank, the originator is obliged 
to pay its order. 
    (2) If the originator is not a bank and proves that the 
person identified by number was not entitled to receive payment 
from the originator, the originator is not obliged to pay its 
order unless the originator's bank proves that the originator, 
before acceptance of the originator's order, had notice that 
payment of a payment order issued by the originator might be 
made by the beneficiary's bank on the basis of an identifying or 
bank account number even if it identifies a person different 
from the named beneficiary.  Proof of notice may be made by any 
admissible evidence.  The originator's bank satisfies the burden 
of proof if it proves that the originator, before the payment 
order was accepted, signed a writing stating the information to 
which the notice relates. 
    (d) In a case governed by subsection (b)(1), if the 
beneficiary's bank rightfully pays the person identified by 
number and that person was not entitled to receive payment from 
the originator, the amount paid may be recovered from that 
person to the extent allowed by the law governing mistake and 
restitution as follows: 
    (1) If the originator is obliged to pay its payment order 
as stated in subsection (c), the originator has the right to 
recover. 
    (2) If the originator is not a bank and is not obliged to 
pay its payment order, the originator's bank has the right to 
recover. 
    Sec. 16.  [336.4A-208] [MISDESCRIPTION OF INTERMEDIARY BANK 
OR BENEFICIARY'S BANK.] 
    (a) This subsection applies to a payment order identifying 
an intermediary bank or the beneficiary's bank only by an 
identifying number. 
    (1) The receiving bank may rely on the number as the proper 
identification of the intermediary or beneficiary's bank and 
need not determine whether the number identifies a bank. 
    (2) The sender is obliged to compensate the receiving bank 
for any loss and expenses incurred by the receiving bank as a 
result of its reliance on the number in executing or attempting 
to execute the order. 
    (b) This subsection applies to a payment order identifying 
an intermediary bank or the beneficiary's bank both by name and 
an identifying number if the name and number identify different 
persons. 
     (1) If the sender is a bank, the receiving bank may rely on 
the number as the proper identification of the intermediary or 
beneficiary's bank if the receiving bank, when it executes the 
sender's order, does not know that the name and number identify 
different persons.  The receiving bank need not determine 
whether the name and number refer to the same person or whether 
the number refers to a bank.  The sender is obliged to 
compensate the receiving bank for any loss and expenses incurred 
by the receiving bank as a result of its reliance on the number 
in executing or attempting to execute the order. 
     (2) If the sender is not a bank and the receiving bank 
proves that the sender, before the payment order was accepted, 
had notice that the receiving bank might rely on the number as 
the proper identification of the intermediary or beneficiary's 
bank even if it identifies a person different from the bank 
identified by name, the rights and obligations of the sender and 
the receiving bank are governed by subsection (b)(1), as though 
the sender were a bank.  Proof of notice may be made by any 
admissible evidence.  The receiving bank satisfies the burden of 
proof if it proves that the sender, before the payment order was 
accepted, signed a writing stating the information to which the 
notice relates. 
    (3) Regardless of whether the sender is a bank, the 
receiving bank may rely on the name as the proper identification 
of the intermediary or beneficiary's bank if the receiving bank, 
at the time it executes the sender's order, does not know that 
the name and number identify different persons.  The receiving 
bank need not determine whether the name and number refer to the 
same person. 
    (4) If the receiving bank knows that the name and number 
identify different persons, reliance on either the name or the 
number in executing the sender's payment order is a breach of 
the obligation stated in section 336.4A-302(a)(1). 
    Sec. 17.  [336.4A-209] [ACCEPTANCE OF PAYMENT ORDER.] 
    (a) Subject to subsection (d), a receiving bank other than 
the beneficiary's bank accepts a payment order when it executes 
the order. 
    (b) Subject to subsections (c) and (d), a beneficiary's 
bank accepts a payment order at the earliest of the following 
times: 
    (1) when the bank (i) pays the beneficiary as stated in 
section 336.4A-405(a) or 336.4A-405(b), or (ii) notifies the 
beneficiary of receipt of the order or that the account of the 
beneficiary has been credited with respect to the order unless 
the notice indicates that the bank is rejecting the order or 
that funds with respect to the order may not be withdrawn or 
used until receipt of payment from the sender of the order; 
    (2) when the bank receives payment of the entire amount of 
the sender's order pursuant to section 336.4A-403(a)(1) or 
336.4A-403(a)(2); or 
    (3) The opening of the next funds-transfer business day of 
the bank following the payment date of the order if, at that 
time, the amount of the sender's order is fully covered by a 
withdrawable credit balance in an authorized account of the 
sender or the bank has otherwise received full payment from the 
sender, unless the order was rejected before that time or is 
rejected within (i) one hour after that time, or (ii) one hour 
after the opening of the next business day of the sender 
following the payment date if that time is later.  If notice of 
rejection is received by the sender after the payment date and 
the authorized account of the sender does not bear interest, the 
bank is obliged to pay interest to the sender on the amount of 
the order for the number of days elapsing after the payment date 
to the day the sender receives notice or learns that the order 
was not accepted, counting that day as an elapsed day.  If the 
withdrawable credit balance during that period falls below the 
amount of the order, the amount of interest payable is reduced 
accordingly. 
    (c) Acceptance of a payment order cannot occur before the 
order is received by the receiving bank.  Acceptance does not 
occur under subsection (b)(2) or (b)(3) if the beneficiary of 
the payment order does not have an account with the receiving 
bank, the account has been closed, or the receiving bank is not 
permitted by law to receive credits for the beneficiary's 
account. 
    (d) A payment order issued to the originator's bank cannot 
be accepted until the payment date if the bank is the 
beneficiary's bank, or the execution date if the bank is not the 
beneficiary's bank.  If the originator's bank executes the 
originator's payment order before the execution date or pays the 
beneficiary of the originator's payment order before the payment 
date and the payment order is subsequently canceled pursuant to 
section 336.4A-211(b), the bank may recover from the beneficiary 
any payment received to the extent allowed by the law governing 
mistake and restitution. 
    Sec. 18. [336.4A-210] [REJECTION OF PAYMENT ORDER.] 
    (a) A payment order is rejected by the receiving bank by a 
notice of rejection transmitted to the sender orally, 
electronically, or in writing.  A notice of rejection need not 
use any particular words and is sufficient if it indicates that 
the receiving bank is rejecting the order or will not execute or 
pay the order.  Rejection is effective when the notice is given 
if transmission is by a means that is reasonable in the 
circumstances.  If notice of rejection is given by a means that 
is not reasonable, rejection is effective when the notice is 
received.  If an agreement of the sender and receiving bank 
establishes the means to be used to reject a payment order, (i) 
any means complying with the agreement is reasonable and (ii) 
any means not complying is not reasonable unless no significant 
delay in receipt of the notice resulted from the use of the 
noncomplying means. 
    (b) This subsection applies if a receiving bank other than 
the beneficiary's bank fails to execute a payment order despite 
the existence on the execution date of a withdrawable credit 
balance in an authorized account of the sender sufficient to 
cover the order.  If the sender does not receive notice of 
rejection of the order on the execution date and the authorized 
account of the sender does not bear interest, the bank is 
obliged to pay interest to the sender on the amount of the order 
for the number of days elapsing after the execution date to the 
earlier of the day the order is canceled pursuant to section 
336.4A-211(d) or the day the sender receives notice or learns 
that the order was not executed, counting the final day of the 
period as an elapsed day.  If the withdrawable credit balance 
during that period falls below the amount of the order, the 
amount of interest is reduced accordingly. 
    (c) If a receiving bank suspends payments, all unaccepted 
payment orders issued to it are deemed rejected at the time the 
bank suspends payments. 
    (d) Acceptance of a payment order precludes a later 
rejection of the order.  Rejection of a payment order precludes 
a later acceptance of the order. 
    Sec. 19.  [336.4A-211] [CANCELLATION AND AMENDMENT OF 
PAYMENT ORDER.] 
    (a) A communication of the sender of a payment order 
canceling or amending the order may be transmitted to the 
receiving bank orally, electronically, or in writing.  If a 
security procedure is in effect between the sender and the 
receiving bank, the communication is not effective to cancel or 
amend the order unless the communication is verified pursuant to 
the security procedure or the bank agrees to the cancellation or 
amendment. 
     (b) Subject to subsection (a), a communication by the 
sender canceling or amending a payment order is effective to 
cancel or amend the order if notice of the communication is 
received at a time and in a manner affording the receiving bank 
a reasonable opportunity to act on the communication before the 
bank accepts the payment order. 
     (c) After a payment order has been accepted, cancellation 
or amendment of the order is not effective unless the receiving 
bank agrees or a funds-transfer system rule allows cancellation 
or amendment without agreement of the bank. 
    (1) With respect to a payment order accepted by a receiving 
bank other than the beneficiary's bank, cancellation or 
amendment is not effective unless a conforming cancellation or 
amendment of the payment order issued by the receiving bank is 
also made. 
    (2) With respect to a payment order accepted by the 
beneficiary's bank, cancellation or amendment is not effective 
unless the order was issued in execution of an unauthorized 
payment order, or because of a mistake by a sender in the funds 
transfer which resulted in the issuance of a payment order (i) 
that is a duplicate of a payment order previously issued by the 
sender, (ii) that orders payment to a beneficiary not entitled 
to receive payment from the originator, or (iii) that orders 
payment in an amount greater than the amount the beneficiary was 
entitled to receive from the originator.  If the payment order 
is canceled or amended, the beneficiary's bank is entitled to 
recover from the beneficiary any amount paid to the beneficiary 
to the extent allowed by the law governing mistake and 
restitution. 
    (d) An unaccepted payment order is canceled by operation of 
law at the close of the fifth funds-transfer business day of the 
receiving bank after the execution date or payment date of the 
order. 
     (e) A canceled payment order cannot be accepted.  If an 
accepted payment order is canceled, the acceptance is nullified 
and no person has any right or obligation based on the 
acceptance.  Amendment of a payment order is deemed to be 
cancellation of the original order at the time of amendment and 
issue of a new payment order in the amended form at the same 
time. 
    (f) Unless otherwise provided in an agreement of the 
parties or in a funds-transfer system rule, if the receiving 
bank, after accepting a payment order, agrees to cancellation or 
amendment of the order by the sender or is bound by a 
funds-transfer system rule allowing cancellation or amendment 
without the bank's agreement, the sender, whether or not 
cancellation or amendment is effective, is liable to the bank 
for any loss and expenses, including reasonable attorney's fees, 
incurred by the bank as a result of the cancellation or 
amendment or attempted cancellation or amendment. 
    (g) A payment order is not revoked by the death or legal 
incapacity of the sender unless the receiving bank knows of the 
death or of an adjudication of incapacity by a court of 
competent jurisdiction and has reasonable opportunity to act 
before acceptance of the order. 
    (h) A funds-transfer system rule is not effective to the 
extent it conflicts with subsection (c)(2). 
    Sec. 20.  [336.4A-212] [LIABILITY AND DUTY OF RECEIVING 
BANK REGARDING UNACCEPTED PAYMENT ORDER.] 
    If a receiving bank fails to accept a payment order that it 
is obliged by express agreement to accept, the bank is liable 
for breach of the agreement to the extent provided in the 
agreement or in this article, but does not otherwise have any 
duty to accept a payment order or, before acceptance, to take 
any action, or refrain from taking action, with respect to the 
order except as provided in this article or by express 
agreement.  Liability based on acceptance arises only when 
acceptance occurs as stated in section 336.4A-209, and liability 
is limited to that provided in this article.  A receiving bank 
is not the agent of the sender or beneficiary of the payment 
order it accepts, or of any other party to the funds transfer, 
and the bank owes no duty to any party to the funds transfer 
except as provided in this article or by express agreement. 

                                 PART 3

         EXECUTION OF SENDER'S PAYMENT ORDER BY RECEIVING BANK
    Sec. 21.  [336.4A-301] [EXECUTION AND EXECUTION DATE.] 
    (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. 
    Sec. 22.  [336.4A-302] [OBLIGATIONS OF RECEIVING BANK IN 
EXECUTION OF PAYMENT ORDER.] 
    (a) Except as provided in subsections (b) through (d), if 
the receiving bank accepts a payment order pursuant to section 
336.4A-209(a), 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 subsection (a)(2) 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.  
    Sec. 23.  [336.4A-303] [ERRONEOUS EXECUTION OF PAYMENT 
ORDER.] 
    (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 section 336.4A-402(c) if that subsection 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 section 336.4A-402(c) if (i) 
that subsection 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 subsection 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. 
    Sec. 24.  [336.4A-304] [DUTY OF SENDER TO REPORT 
ERRONEOUSLY EXECUTED PAYMENT ORDER.] 
    If the sender of a payment order that is erroneously 
executed as stated in section 336.4A-303 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 
section 336.4A-402(d) 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. 
    Sec. 25.  [336.4A-305] [LIABILITY FOR LATE OR IMPROPER 
EXECUTION OR FAILURE TO EXECUTE PAYMENT ORDER.] 
    (a) If a funds transfer is completed but execution of a 
payment order by the receiving bank in breach of section 
336.4A-302 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), additional damages are not recoverable. 
    (b) If execution of a payment order by a receiving bank in 
breach of section 336.4A-302 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), 
resulting from the improper execution.  Except as provided in 
subsection (c), additional damages are not recoverable. 
     (c) In addition to the amounts payable under subsections 
(a) and (b), damages, including consequential damages, are 
recoverable to the extent provided in an express written 
agreement of the receiving bank. 
     (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 
written agreement of the receiving bank, but are not otherwise 
recoverable. 
     (e) Reasonable attorney's fees are recoverable if demand 
for compensation under subsection (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 subsection (d) and the 
agreement does not provide for damages, reasonable attorney's 
fees are recoverable if demand for compensation under subsection 
(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 subsections (a) and (b) may not be varied 
by agreement. 

                                 PART 4

                                PAYMENT
    Sec.  26.  [336.4A-401] [PAYMENT DATE.] 
    "Payment date" of a payment order means the day on which 
the amount of the order is payable to the beneficiary by the 
beneficiary's bank. The payment date may be determined by 
instruction of the sender but cannot be earlier than the day the 
order is received by the beneficiary's bank and, unless 
otherwise determined, is the day the order is received by the 
beneficiary's bank. 
    Sec. 27.  [336.4A-402] [OBLIGATION OF SENDER TO PAY 
RECEIVING BANK.] 
    (a) This section is subject to sections 336.4A-205 and 
336.4A-207. 
    (b) With respect to a payment order issued to the 
beneficiary's bank, acceptance of the order by the bank obliges 
the sender to pay the bank the amount of the order, but payment 
is not due until the payment date of the order. 
    (c) This subsection is subject to subsection (e) and to 
section 336.4A-303.  With respect to a payment order issued to a 
receiving bank other than the beneficiary's bank, acceptance of 
the order by the receiving bank obliges the sender to pay the 
bank the amount of the sender's order.  Payment by the sender is 
not due until the execution date of the sender's order.  The 
obligation of that sender to pay its payment order is excused if 
the funds transfer is not completed by acceptance by the 
beneficiary's bank of a payment order instructing payment to the 
beneficiary of that sender's payment order. 
    (d) If the sender of a payment order pays the order and was 
not obliged to pay all or part of the amount paid, the bank 
receiving payment is obliged to refund payment to the extent the 
sender was not obliged to pay.  Except as provided in sections 
336.4A-204 and 336.4A-304, interest is payable on the refundable 
amount from the date of payment. 
    (e) If a funds transfer is not completed as stated in 
subsection (c) and an intermediary bank is obliged to refund 
payment as stated in subsection (d) but is unable to do so 
because not permitted by applicable law or because the bank 
suspends payments, a sender in the funds transfer that executed 
a payment order in compliance with an instruction, as stated in 
section 336.4A-302(a)(1), to route the funds transfer through 
that intermediary bank is entitled to receive or retain payment 
from the sender of the payment order that it accepted.  The 
first sender in the funds transfer that issued an instruction 
requiring routing through that intermediary bank is subrogated 
to the right of the bank that paid the intermediary bank to 
refund as stated in subsection (d). 
    (f) The right of the sender of a payment order to be 
excused from the obligation to pay the order as stated in 
subsection (c) or to receive refund under subsection (d) may not 
be varied by agreement. 
    Sec. 28.  [336.4A-403] [PAYMENT BY SENDER TO RECEIVING 
BANK.] 
    (a) Payment of the sender's obligation under section 
336.4A-402 to pay the receiving bank occurs as follows: 
    (1) If the sender is a bank, payment occurs when the 
receiving bank receives final settlement of the obligation 
through a Federal Reserve Bank or through a funds-transfer 
system. 
    (2) If the sender is a bank and the sender (i) credited an 
account of the receiving bank with the sender, or (ii) caused an 
account of the receiving bank in another bank to be credited, 
payment occurs when the credit is withdrawn or, if not 
withdrawn, at midnight of the day on which the credit is 
withdrawable and the receiving bank learns of that fact. 
    (3) If the receiving bank debits an account of the sender 
with the receiving bank, payment occurs when the debit is made 
to the extent the debit is covered by a withdrawable credit 
balance in the account. 
    (b) If the sender and receiving bank are members of a 
funds-transfer system that nets obligations multilaterally among 
participants, the receiving bank receives final settlement when 
settlement is complete in accordance with the rules of the 
system.  The obligation of the sender to pay the amount of a 
payment order transmitted through the funds-transfer system may 
be satisfied, to the extent permitted by the rules of the 
system, by setting off and applying against the sender's 
obligation the right of the sender to receive payment from the 
receiving bank of the amount of any other payment order 
transmitted to the sender by the receiving bank through the 
funds-transfer system.  The aggregate balance of obligations 
owed by each sender to each receiving bank in the funds-transfer 
system may be satisfied, to the extent permitted by the rules of 
the system, by setting off and applying against that balance the 
aggregate balance of obligations owed to the sender by other 
members of the system.  The aggregate balance is determined 
after the right of setoff stated in the second sentence of this 
subsection has been exercised. 
    (c) If two banks transmit payment orders to each other 
under an agreement that settlement of the obligations of each 
bank to the other under section 336.4A-402 will be made at the 
end of the day or other period, the total amount owed with 
respect to all orders transmitted by one bank shall be set off 
against the total amount owed with respect to all orders 
transmitted by the other bank.  To the extent of the setoff, 
each bank has made payment to the other. 
    (d) In a case not covered by subsection (a), the time when 
payment of the sender's obligation under section 336.4A-402(b) 
or 336.4A-402(c) occurs is governed by applicable principles of 
law that determine when an obligation is satisfied. 
    Sec. 29.  [336.4A-404] [OBLIGATION OF BENEFICIARY'S BANK TO 
PAY AND GIVE NOTICE TO BENEFICIARY.] 
    (a) Subject to sections 336.4A-211(e), 336.4A-405(d), and 
336.4A-405(e), if a beneficiary's bank accepts a payment order, 
the bank is obliged to pay the amount of the order to the 
beneficiary of the order.  Payment is due on the payment date of 
the order, but if acceptance occurs on the payment date after 
the close of the funds-transfer business day of the bank, 
payment is due on the next funds-transfer business day.  If the 
bank refuses to pay after demand by the beneficiary and receipt 
of notice of particular circumstances that will give rise to 
consequential damages as a result of nonpayment, the beneficiary 
may recover damages resulting from the refusal to pay to the 
extent the bank had notice of the damages, unless the bank 
proves that it did not pay because of a reasonable doubt 
concerning the right of the beneficiary to payment. 
     (b) If a payment order accepted by the beneficiary's bank 
instructs payment to an account of the beneficiary, the bank is 
obliged to notify the beneficiary of receipt of the order before 
midnight of the next funds-transfer business day following the 
payment date.  If the payment order does not instruct payment to 
an account of the beneficiary, the bank is required to notify 
the beneficiary only if notice is required by the order.  Notice 
may be given by first class mail or any other means reasonable 
in the circumstances. If the bank fails to give the required 
notice, the bank is obliged to pay interest to the beneficiary 
on the amount of the payment order from the day notice should 
have been given until the day the beneficiary learned of receipt 
of the payment order by the bank.  No other damages are 
recoverable.  Reasonable attorney's fees are also recoverable if 
demand for interest is made and refused before an action is 
brought on the claim.  
    (c) The right of a beneficiary to receive payment and 
damages as stated in subsection (a) may not be varied by 
agreement or a funds-transfer system rule.  The right of a 
beneficiary to be notified as stated in subsection (b) may be 
varied by agreement of the beneficiary or by a funds-transfer 
system rule if the beneficiary is notified of the rule before 
initiation of the funds transfer. 
    Sec. 30.  [336.4A-405] [PAYMENT BY BENEFICIARY'S BANK TO 
BENEFICIARY.] 
    (a) If the beneficiary's bank credits an account of the 
beneficiary of a payment order, payment of the bank's obligation 
under section 336.4A-404(a) occurs when and to the extent (i) 
the beneficiary is notified of the right to withdraw the credit, 
(ii) the bank lawfully applies the credit to a debt of the 
beneficiary, or (iii) funds with respect to the order are 
otherwise made available to the beneficiary by the bank. 
    (b) If the beneficiary's bank does not credit an account of 
the beneficiary of a payment order, the time when payment of the 
bank's obligation under section 336.4A-404(a) occurs is governed 
by principles of law that determine when an obligation is 
satisfied. 
    (c) Except as stated in subsections (d) and (e), if the 
beneficiary's bank pays the beneficiary of a payment order under 
a condition to payment or agreement of the beneficiary giving 
the bank the right to recover payment from the beneficiary if 
the bank does not receive payment of the order, the condition to 
payment or agreement is not enforceable.  
    (d) A funds-transfer system rule may provide that payments 
made to beneficiaries of funds transfers made through the system 
are provisional until receipt of payment by the beneficiary's 
bank of the payment order it accepted.  A beneficiary's bank 
that makes a payment that is provisional under the rule is 
entitled to refund from the beneficiary if (i) the rule requires 
that both the beneficiary and the originator be given notice of 
the provisional nature of the payment before the funds transfer 
is initiated, (ii) the beneficiary, the beneficiary's bank and 
the originator's bank agreed to be bound by the rule, and (iii) 
the beneficiary's bank did not receive payment of the payment 
order that it accepted.  If the beneficiary is obliged to refund 
payment to the beneficiary's bank, acceptance of the payment 
order by the beneficiary's bank is nullified and no payment by 
the originator of the funds transfer to the beneficiary occurs 
under section 336.4A-406. 
    (e) This subsection applies to a funds transfer that 
includes a payment order transmitted over a funds-transfer 
system that (i) nets obligations multilaterally among 
participants, and (ii) has in effect a loss-sharing agreement 
among participants for the purpose of providing funds necessary 
to complete settlement of the obligations of one or more 
participants that do not meet their settlement obligations.  If 
the beneficiary's bank in the funds transfer accepts a payment 
order and the system fails to complete settlement pursuant to 
its rules with respect to any payment order in the funds 
transfer, (i) the acceptance by the beneficiary's bank is 
nullified and no person has any right or obligation based on the 
acceptance, (ii) the beneficiary's bank is entitled to recover 
payment from the beneficiary, (iii) no payment by the originator 
to the beneficiary occurs under section 336.4A-406, and (iv) 
subject to section 336.4A-402(e), each sender in the funds 
transfer is excused from its obligation to pay its payment order 
under section 336.4A-402(c) because the funds transfer has not 
been completed. 
    Sec. 31.  [336.4A-406] [PAYMENT BY ORIGINATOR TO 
BENEFICIARY; DISCHARGE OF UNDERLYING OBLIGATION.] 
    (a) Subject to sections 336.4A-211(e), 336.4A-405(d), and 
336.4A-405(e), the originator of a funds transfer pays the 
beneficiary of the originator's payment order (i) at the time a 
payment order for the benefit of the beneficiary is accepted by 
the beneficiary's bank in the funds transfer and (ii) in an 
amount equal to the amount of the order accepted by the 
beneficiary's bank, but not more than the amount of the 
originator's order. 
    (b) If payment under subsection (a) is made to satisfy an 
obligation, the obligation is discharged to the same extent 
discharge would result from payment to the beneficiary of the 
same amount in money, unless (i) the payment under subsection 
(a) was made by a means prohibited by the contract of the 
beneficiary with respect to the obligation, (ii) the 
beneficiary, within a reasonable time after receiving notice of 
receipt of the order by the beneficiary's bank, notified the 
originator of the beneficiary's refusal of payment, (iii) funds 
with respect to the order were not withdrawn by the beneficiary 
or applied to a debt of the beneficiary, and (iv) the 
beneficiary would suffer a loss that could reasonably have been 
avoided if payment had been made by a means complying with the 
contract.  If payment by the originator does not result in 
discharge under this section, the originator is subrogated to 
the rights of the beneficiary to receive payment from the 
beneficiary's bank under section 336.4A-404(a). 
    (c) For the purpose of determining whether discharge of an 
obligation occurs under subsection (b), if the beneficiary's 
bank accepts a payment order in an amount equal to the amount of 
the originator's payment order less charges of one or more 
receiving banks in the funds transfer, payment to the 
beneficiary is deemed to be in the amount of the originator's 
order unless upon demand by the beneficiary the originator does 
not pay the beneficiary the amount of the deducted charges. 
    (d) Rights of the originator or of the beneficiary of a 
funds transfer under this section may be varied only by 
agreement of the originator and the beneficiary. 

                                 PART 5

                        MISCELLANEOUS PROVISIONS
    Sec.  32.  [336.4A-501] [VARIATION BY AGREEMENT AND EFFECT 
OF FUNDS-TRANSFER SYSTEM RULE.] 
    (a) Except as otherwise provided in this article, the 
rights and obligations of a party to a funds transfer may be 
varied by agreement of the affected party. 
    (b) "Funds-transfer system rule" means a rule of an 
association of banks (i) governing transmission of payment 
orders by means of a funds-transfer system of the association or 
rights and obligations with respect to those orders, or (ii) to 
the extent the rule governs rights and obligations between banks 
that are parties to a funds transfer in which a Federal Reserve 
Bank, acting as an intermediary bank, sends a payment order to 
the beneficiary's bank.  Except as otherwise provided in this 
article, a funds-transfer system rule governing rights and 
obligations between participating banks using the system may be 
effective even if the rule conflicts with this article and 
indirectly affects another party to the funds transfer who does 
not consent to the rule.  A funds-transfer system rule may also 
govern rights and obligations of parties other than 
participating banks using the system to the extent stated in 
sections 336.4A-404(c), 336.4A-405(d), and 336.4A-507(c). 
    Sec. 33.  [336.4A-502] [CREDITOR PROCESS SERVED ON 
RECEIVING BANK; SETOFF BY BENEFICIARY'S BANK.] 
    (a) As used in this section, "creditor process" means levy, 
attachment, garnishment, notice of lien, sequestration, or 
similar process issued by or on behalf of a creditor or other 
claimant with respect to an account. 
    (b) This subsection applies to creditor process with 
respect to an authorized account of the sender of a payment 
order if the creditor process is served on the receiving bank.  
For the purpose of determining rights with respect to the 
creditor process, if the receiving bank accepts the payment 
order the balance in the authorized account is deemed to be 
reduced by the amount of the payment order to the extent the 
bank did not otherwise receive payment of the order, unless the 
creditor process is served at a time and in a manner affording 
the bank a reasonable opportunity to act on it before the bank 
accepts the payment order. 
    (c) If a beneficiary's bank has received a payment order 
for payment to the beneficiary's account in the bank, the 
following rules apply: 
    (1) The bank may credit the beneficiary's account.  The 
amount credited may be set off against an obligation owed by the 
beneficiary to the bank or may be applied to satisfy creditor 
process served on the bank with respect to the account. 
    (2) The bank may credit the beneficiary's account and allow 
withdrawal of the amount credited unless creditor process with 
respect to the account is served at a time and in a manner 
affording the bank a reasonable opportunity to act to prevent 
withdrawal. 
    (3) If creditor process with respect to the beneficiary's 
account has been served and the bank has had a reasonable 
opportunity to act on it, the bank may not reject the payment 
order except for a reason unrelated to the service of process. 
    (d) Creditor process with respect to a payment by the 
originator to the beneficiary pursuant to a funds transfer may 
be served only on the beneficiary's bank with respect to the 
debt owed by that bank to the beneficiary.  Any other bank 
served with the creditor process is not obliged to act with 
respect to the process. 
    Sec. 34.  [336.4A-503] [INJUNCTION OR RESTRAINING ORDER 
WITH RESPECT TO FUNDS TRANSFER.] 
    For proper cause and in compliance with applicable law, a 
court may restrain (i) a person from issuing a payment order to 
initiate a funds transfer, (ii) an originator's bank from 
executing the payment order of the originator, or (iii) the 
beneficiary's bank from releasing funds to the beneficiary or 
the beneficiary from withdrawing the funds.  A court may not 
otherwise restrain a person from issuing a payment order, paying 
or receiving payment of a payment order, or otherwise acting 
with respect to a funds transfer. 
    Sec. 35.  [336.4A-504] [ORDER IN WHICH ITEMS AND PAYMENT 
ORDERS MAY BE CHARGED TO ACCOUNT; ORDER OF WITHDRAWALS FROM 
ACCOUNT.] 
    (a) If a receiving bank has received more than one payment 
order of the sender or one or more payment orders and other 
items that are payable from the sender's account, the bank may 
charge the sender's account with respect to the various orders 
and items in any sequence.  
    (b) In determining whether a credit to an account has been 
withdrawn by the holder of the account or applied to a debt of 
the holder of the account, credits first made to the account are 
first withdrawn or applied. 
    Sec. 36.  [336.4A-505] [PRECLUSION OF OBJECTION TO DEBIT OF 
CUSTOMER'S ACCOUNT.] 
    If a receiving bank has received payment from its customer 
with respect to a payment order issued in the name of the 
customer as sender and accepted by the bank, and the customer 
received notification reasonably identifying the order, the 
customer is precluded from asserting that the bank is not 
entitled to retain the payment unless the customer notifies the 
bank of the customer's objection to the payment within one year 
after the notification was received by the customer. 
    Sec. 37.  [336.4A-506] [RATE OF INTEREST.] 
    (a) If, under this article, a receiving bank is obliged to 
pay interest with respect to a payment order issued to the bank, 
the amount payable may be determined (i) by agreement of the 
sender and receiving bank, or (ii) by a funds-transfer system 
rule if the payment order is transmitted through a 
funds-transfer system. 
    (b) If the amount of interest is not determined by an 
agreement or rule as stated in subsection (a), the amount is 
calculated by multiplying the applicable Federal Funds rate by 
the amount on which interest is payable, and then multiplying 
the product by the number of days for which interest is 
payable.  The applicable Federal Funds rate is the average of 
the Federal Funds rates published by the Federal Reserve Bank of 
New York for each of the days for which interest is payable 
divided by 360.  The Federal Funds rate for any day on which a 
published rate is not available is the same as the published 
rate for the next preceding day for which there is a published 
rate.  If a receiving bank that accepted a payment order is 
required to refund payment to the sender of the order because 
the funds transfer was not completed, but the failure to 
complete was not due to any fault by the bank, the interest 
payable is reduced by a percentage equal to the reserve 
requirement on deposits of the receiving bank. 
    Sec. 38.  [336.4A-507] [CHOICE OF LAW.] 
    (a) The following rules apply unless the affected parties 
otherwise agree or subsection (c) applies: 
     (1) The rights and obligations between the sender of a 
payment order and the receiving bank are governed by the law of 
the jurisdiction in which the receiving bank is located. 
     (2) The rights and obligations between the beneficiary's 
bank and the beneficiary are governed by the law of the 
jurisdiction in which the beneficiary's bank is located. 
     (3) The issue of when payment is made pursuant to a funds 
transfer by the originator to the beneficiary is governed by the 
law of the jurisdiction in which the beneficiary's bank is 
located. 
     (b) If the parties described in each paragraph of 
subsection (a) have made an agreement selecting the law of a 
particular jurisdiction to govern rights and obligations between 
each other, the law of that jurisdiction governs those rights 
and obligations, whether or not the payment order or the funds 
transfer bears a reasonable relation to that jurisdiction. 
     (c) A funds-transfer system rule may select the law of a 
particular jurisdiction to govern (i) rights and obligations 
between participating banks with respect to payment orders 
transmitted or processed through the system, or (ii) the rights 
and obligations of some or all parties to a funds transfer any 
part of which is carried out by means of the system.  A choice 
of law made pursuant to clause (i) is binding on participating 
banks.  A choice of law made pursuant to clause (ii) is binding 
on the originator, other sender, or a receiving bank having 
notice that the funds-transfer system might be used in the funds 
transfer and of the choice of law by the system when the 
originator, other sender, or receiving bank issued or accepted a 
payment order.  The beneficiary of a funds transfer is bound by 
the choice of law if, when the funds transfer is initiated, the 
beneficiary has notice that the funds-transfer system might be 
used in the funds transfer and of the choice of law by the 
system.  The law of a jurisdiction selected pursuant to this 
subsection may govern, whether or not that law bears a 
reasonable relation to the matter in issue. 
    (d) In the event of inconsistency between an agreement 
under subsection (b) and a choice-of-law rule under subsection 
(c), the agreement under subsection (b) prevails. 
    (e) If a funds transfer is made by use of more than one 
funds-transfer system and there is inconsistency between 
choice-of-law rules of the systems, the matter in issue is 
governed by the law of the selected jurisdiction that has the 
most significant relationship to the matter in issue. 

                                ARTICLE 2

                          CONFORMING AMENDMENTS
    Section 1.  Minnesota Statutes 1989 Supplement, section 
336.1-105, is amended to read: 
    336.1-105 [TERRITORIAL APPLICATION OF THE CHAPTER; PARTIES' 
POWER TO CHOOSE APPLICABLE LAW.] 
    (1) Except as provided hereafter in this section, when a 
transaction bears a reasonable relation to this state and also 
to another state or nation the parties may agree that the law 
either of this state or of such other state or nation shall 
govern their rights and duties.  Failing such agreement this 
chapter applies to transactions bearing an appropriate relation 
to this state. 
    (2) Where one of the following provisions of this chapter 
specifies the applicable law, that provision governs and a 
contrary agreement is effective only to the extent permitted by 
the law (including the conflict of laws rules) so specified: 
    Rights of creditors against sold goods.  Section 336.2-402. 
    Applicability of the article on leases.  Sections 
336.2A-105 and 336.2A-106.  
    Applicability of the article on bank deposits and 
collections.  Section 336.4-102. 
     Governing law in the article on funds transfers.  Section 
336.4A-507. 
    Bulk transfers subject to the article on bulk transfers. 
Section 336.6-102. 
    Applicability of the article on investment securities. 
Section 336.8-106. 
    Perfection provisions of the article on secured 
transactions.  Section 336.9-103. 
     Sec. 2.  [EFFECTIVE DATE.] 
    This act is effective January 1, 1991. 
    Presented to the governor April 28, 1990 
    Signed by the governor May 4, 1990, 10:46 p.m.