## F I L E D United States Court of Appeals Tenth Circuit 

### JUN 20 2000 

### PATRICK FISHER Clerk PUBLISH
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

FIRST SECURITY BANK, of New Mexico, N.A.,Plaintiff-Counter-DefendantAppellant,

v. PAN AMERICAN BANK,Defendant-Counter-ClaimantCross-Defendant-Appellee,

v. 1ST STATE INVESTMENT CO.; MATHER FEDERAL CREDIT UNION; JOHN P. McGOVERN FOUNDATION,Defendants-Counter-ClaimantsCross-Claimants-Appellees,
NEW MEXICO BANKERS ASSOCIATION, Amicus Curiae. No. 98-20732

FIRST SECURITY BANK, of New Mexico, N.A.,Plaintiff-Counter-DefendantAppellee,

v. PAN AMERICAN BANK,Defendant-Counter-ClaimantCross-Defendant-Appellant,

v. 1ST STATE INVESTMENT CO.; MATHER FEDERAL CREDIT UNION; JOHN P. McGOVERN FOUNDATION,Defendants-Counter-ClaimantsCross-Claimants,
NEW MEXICO BANKERS ASSOCIATION, Amicus Curiae. No. 98-2091

APPEAL FROM UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO (D.C. No. CIV-94-1464-LH)

John A. Adams, of Ray, Quinney & Nebeker, Salt Lake City, Utah, (Scott H. Clark and Douglas M. Monson, of Ray, Quinney & Nebe ker, Salt Lake City, Utah; and Gordon S. Little, of Gordon S. Little, P. A., Albuquerque, New Mexico, with him on the brief), for the plaintiff/counter-d efendant/appellant/appellee First Security Bank of New Mexico, N.A.3

John G. Baugh, of Eaves, Bardacke & Baugh, P.A., Al buquerque, New Mexico, for the defendants/counter-claimants/cross-claimant s/appellees 1st State Investment Co., and John P. McGovern Foundation. Robert A. Johnson (Karla K. Poe with him on the bri ef), of Eastham, Johnson, Monnheimer & Jontz, P.C., Albuquerque, New Mexico, for the defendant/counterclaimant/cross-defendant/appellant/appellee Pan Ame rican Bank. Barkley Clark, of Shook, Hardy & Bacon, L.L.P., Kan sas City, Missouri, on the brief for New Mexico Bankers Association, amicus cu riae.

Before EBEL, McKAY , andBRISCOE , Circuit Judges.

BRISCOE , Circuit Judge.

First Security Bank (First Security) appeals the di strict court’s entry of summary judgment in favor of Pan American Bank (PanAmerican), and the court’s assessment of liability on three countercla ims . Pan American crossappeals the district court’s calculation of damages . We reverse the entry of summary judgment in favor of Pan American and the j udgments in favor of 1st State Investment Co. (1st State) and John P. McGove rn Foundation (McGovern).
I. On August 3, 1994, Beatrice Stonebanks, in the name of her business “Benjamin, Maxwell & Co. Corp.,” opened a business savings account at First Security. She was assigned account number 03301536 3 and she designated the account “Jumbo CD Account.” On the day Stonebanks opened the account, Pan4

American wired $495,000 to First Security. The wir e described the beneficiary as First National Bank (First Security’s former tit le) and identified the account number as 033015363. Pan American believed it was purchasing a CD from First Security, not that it was transferring funds to Ben jamin Maxwell which in turn would purchase the CD. First Security receives and processes wires by mean s of a semi-automated wire processing system denominated “WireNet,” which itself interfaces with FedWire, the Federal Reserve Bank’s wire system. A n incoming wire is received by WireNet and a hard copy of the wire instructions is automatically printed. Without human interaction, WireNet verifies that th e beneficiary account number identified in the wire instructions matches a validaccount number at First Security. WireNet ignores any named beneficiary li sted in the wire instructions. When a wire is received, a First Security employee removes the hard copy of the wire from the printer, goes to his or her computer terminal, and generates a copy of the wire on a monitor by striking a key on the c omputer keyboard. The employee types in a department code and then strike s two keys on the keyboard. If the account number identified in the wire matche s a valid First Security account number, WireNet accepts the wire when the l ast key is struck. An error message is displayed if the system does not accept the wire. After a wire is processed, a bank employee customarily places a cou rtesy call to the beneficiary,5

advising that the wire has been received and the fu nds have been credited to the beneficiary’s account. It is not disputed that Bobby Quintana accepted the Pan American wire and credited the account. Although he had no actual re collection of the wire, he conceded in his deposition that his handwritten ini tials in the corner of the wire indicated he had processed it. Quintana did not make the courtesy call to Stonebanks because he could not find a phone numberfor the account. He took the hard copy of the wire to Nancy Abeyta, his supe rvisor, who telephoned the branch office where Stonebanks had opened the accou nt and asked an employee of that office to inform the account holder that $4 95,000 had been wired and deposited into the account. On November 8, 1994, 1st State wired $99,000 to Fir st Security. The wire identified the beneficiary as “1st State InvestmentJumbo CD” and account number 033015363. On November 9, McGovern wired $9 9,000 to First Security. The wire identified the beneficiary as “John P. McG overn Foundation” and account number 033015363. Both 1st State and McGov ern believed they were purchasing CDs directly from First Security. Curti s Garcia, an employee of First Security, received both wires, credited the account , and made courtesy calls to Stonebanks. On November 29, First Security became aware of the fraudulent scheme. It6

immediately froze Stonebanks’ accounts, filed an in terpleader action under 28 U.S.C. § 1335, and deposited $305,877.12 (the cumul ative amount of Stonebanks’ accounts with First Security) with the Registry of the United States District Court for the District of New Mexico. All of the adverse claimants (Pan American, 1st State, and McGovern) filed countercla ims against First Security under N.M. Stat. Ann. § 55-4A-207, which governs a bank’s liability when a wire transfer misdescribes a beneficiary. Under the statute, if a bank has actual knowledge that the wire identifies two different be neficiaries (one by name and a different one by account number), the originator of the wire may have a right to recover from the bank. The adverse claimants here charged that First Security had actual knowledge that the wires identified diff erent beneficiaries but processed the wires and released the funds to Stone banks without further inquiry. After discovery, the parties filed cross-motions fo r summary judgment. The district court entered summary judgment in favo r of Pan American on its counterclaim against First Security. The court rul ed that First Security had actual knowledge that the Pan American wire identified two different beneficiaries. The court based its ruling on Quintana’s deposition testimony that he knew only savings accounts began with “0” (here, the account number in question was 033015363) and a bank (First National Bank, First S ecurity’s former title, was the named beneficiary) could not have a savings acc ount. The court denied 1st7

State’s and McGovern’s summary judgment motions, fi nding material issues of fact remained. After a bench trial, the district c ourt found First Security had actual knowledge that the 1st State and McGovern wi res identified different beneficiaries. The court reasoned First Security o btained such knowledge when Garcia made the customary courtesy calls.
II. Rights and liabilities for payment orders, or wire transfers, are governed by Article 4A of the Uniform Commercial Code, codifiedin New Mexico at N.M. Stat. Ann. § 55-4A-101 et seq . Article 4A was crafted with the express purpose of creating – in an age of increasing automation – inflexible rules of liability for wire transfer disputes. See id. § 102, Official Comment (stating that a “deliberate decision” was made to “use precise and detailed rules to assign responsibility”). Such bright-line rules are neces sary so that parties to the millions of annual wire transfers may “predict riskwith certainty, . . . insure against risk, . . . adjust operational and securityprocedures, and . . . price funds transfer services appropriately.” Id. Section 55-4A-207 governs liability when a wire transfer misdescribes a beneficiary. A misdescription occurs when a wire i dentifies a beneficiary by name and account number and the name and account nu mber identify different persons or entities. In these circumstances, liabi lity of a beneficiary’s bank is8

dependent on whether the bank, with actual knowledg e of the conflict, paid the order to a person not entitled to receive the funds

.

(b) If a payment order received by the beneficiary ’s bank identifies the beneficiary both by name and by an i dentifying or bank account number and the name and number identify dif ferent 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. Th e beneficiary’s bank need not determine whether the name and number refe r to the same person. (2) If the beneficiary’s bank pays the person iden tified by name or knows that the name and number identify dif ferent persons, no person has rights as beneficiary except the pers on paid by the beneficiary’s bank if that person was entitled to r eceive payment from the originator of the funds transfer. If no p erson has rights as beneficiary, acceptance of the order cannot occur. Id. § 55-4A-207(b). As noted, § 55-4A-207(b) was designed with automate d wire transfer services in mind. In a fully automated system, computer software identifies the account number on an incoming wire, searches the bank’s system for a matching account number, and credits the account if a match is found. Id. , Official Comment 2. The efficiency benefits of an automatedsystem are undermined if a bank is not able to rely on its automated system bu t must independently verify there is no conflict between a beneficiary name and an account number. Thus, the drafters of § 55-4A-207 clarified that although it is possible for the beneficiary’s bank to determine whether the name an d number refer to the same9

person, it “has no duty to determine whether there is a conflict and it may rely on the number as the proper identification of the beneficiary of the order.” Id

. Significantly, the statute “is not limited to cases in which processing is done by automated means. A bank that processes by semi-aut omated means or even manually may rely on number as stated in Section 4A-207.” Id. Although a bank has no duty to affirmatively search for conflicts between beneficiary names and account numbers of incoming w ires, it may not escape liability if, before it pays the wire, it gains kno wledge of the conflict by any means but nonetheless pays an individual who is notentitled to receive the funds. “Knowledge” means actual knowledge, not constructiv e knowledge, and is determined at the time of payment. Id.
III. First Security contends the district court erred in granting summary judgment in favor of Pan American because there wer e genuine issues of material fact as to whether First Security had actual knowle dge that the wire identified conflicting beneficiaries. The district court rule d that First Security through its employee Quintana had actual knowledge at the time the Pan American wire was paid. The first beneficiary was identified by name as First Security and the second beneficiary was identified by account number033015363. First Security asserts the district court applied an improper cons tructive knowledge legal10

standard and usurped the function of the factfinderby improperly weighing conflicting evidence and drawing inferences to conc lude Quintana had actual knowledge of a discrepancy. We review the grant of summary judgment de novo, ap plying the same legal standard applied by the district court. See Wolf v. Prudential Ins. Co. , 50 F.3d 793, 796 (10th Cir. 1995). Summary judgment i s appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that the re is no genuine issue as to any material fact and that the moving party is entitledto a judgment as a matter of law.” Fed. R. Civ. P. 56(c). In applying this standard, we examine the factual record in the light most favorable to the nonmoving party. See Wolf , 50 F.3d at
796. First Security initially argues the district court applied an improper constructive knowledge standard rather than an actu al knowledge standard in determining First Security’s liability under § 55-4 A-207. However, First Security does not identify any statements made by the court at the summary judgment hearing or in its ruling that support a belief thatthe standard was merely “should have known.” The record and the district court’s o rder reflect the court’s understanding that the statute requires actual know ledge. The court specifically ruled “that, based upon his testimony, Mr. Quintanahad actual knowledge at the11

time he received the wire that it identified two di fferent persons as the beneficiary and that he could not tell who the real beneficiary was of the account number.” App. at 1314. The court also stated thatunder § 55-4A-207, “knowledge is defined . . . to mean actual knowledge.” Id. The more difficult issue is whether the district co urt properly found there were no genuine issues of material fact regarding Q uintana’s actual knowledge of the discrepancy. In support of its bench ruling, the court identified the following purportedly undisputed material facts: (1) The Pan American wire identified two beneficiaries on its face; (2) Quintana’s admitted usual practice was to look “at the entire line which designated the destination fo r the wire transfer”; (3) at his deposition, Quintana could not identify the benefic iary of the Pan American wire because of the discrepancy; (4) if a wire does not indicate a name, Quintana uses the account number to obtain a name and phone numbe r to make a courtesy call; (5) Quintana obtains the name and phone number befo re accepting the wire; (6) Quintana could not obtain the name and phone numberof the holder of account number 033015363 so he “went to Nancy Abeyta with r espect to the issue in question”; and (7) Quintana accepted the wire and “ deposited it in the account of Benjamin Maxwell.” Id. at 1312-13. The district court did not address th at Quintana did not recall processing the Pan American wire. From these facts, the court reasoned:12 I conclude that, based upon his testimony, Mr. Quin tana had actual knowledge at the time he received the wire that it identified two different persons as the beneficiary and that h e could not tell who the real beneficiary was of the account number. Quintana stated that the First National Bank could not be the benef iciary because it is a savings account, which that bank could not hav e. He also testified that, as he looked at it during the depos ition, it raised a question in his mind, he did not have the name to g o with the account. It’s clear also that he knew that there w as a problem with the transfer, but he did nothing to resolve that pr oblem. . . . [Section 4A-207] places or states the rationa le for the result which First Security would want based upon an automatic transfer. I don’t think that’s what this is. I do n’t believe it is an automatic transfer, or an automated transfer. And in any event, I conclude that subsection (b)(2) of Section 207 appl ies, and I conclude that the beneficiary bank . . . knew that the name and number identified different persons. Id. at 1314-15. First Security contends, and we agree, that in gran ting summary judgment the district court ignored relevant contrary eviden ce in the record and inappropriately drew inferences in favor of the mov ing party. “[A]t the summary judgment stage the judge’s function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 249 (1986). “Credibility determinations, the weighing of the ev idence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge.” Id. at 255. “The evidence of the non-movant is to be b elieved, and all justifiable inferences are to be drawn in his favor.” Id.13

Contrary to the district court’s ruling, it is not clear that Quintana’s usual practice was to look “at the entire line which desi gnated the destination for the wire transfer.” At his deposition, Quintana testif ied that when the bank received a wire, he would “walk over to the printer where itprinted, tear it off the printer, walk back to my desk, and input it.” App. at 143. He indicated that as he returned to his desk (a few feet away), he would lo ok “to see who it’s for, that it does have an account number and that . . . the format is correct.” Id. Quintana conceded that it was not uncommon for numerous wire s to be waiting at the printer and he “usually just [read] the top one” as he returned to his desk. Id. at 146. There is no evidence in the record to suggest , and Quintana did not recall, that the Pan American wire was the only wire at the printer when Quintana retrieved it or, if it was not the only wire, if th e Pan American wire was on top. Because one could reasonably infer that Quintana di d not read the Pan American wire, the district court erred in drawing the infer ence in favor of Pan American, the moving party. See Dayton Hudson Corp. v. Macerich Real Estate Co. , 812 F.2d 1319, 1322-23 (10th Cir. 1987) (“Where differe nt, ultimate inferences may be drawn from the evidence presented by the parties , the case is not appropriate for summary judgment.”) Even if Quintana’s deposition testimony could be re ad to compel the conclusion that he looked at the Pan American wire, another impermissible1 The district court apparently relied on this test imony to conclude that

Quintana typically obtained the name and phone numb er of the account holder and made a courtesy call before processing a wire. We read Quintana’s deposition testimony to say that he would follow th is process only if he discovered a discrepancy. As for his routine pract ice in processing a typical wire, his testimony is conflicting and ambiguous. Quintana testified at one point that when he did not notice a discrepancy, he obtai ned the name and phone number and made the call as he processed the wire; at another point he testified that he obtained the name and phone number and made the courtesy call after he processed the wire. See App. at 146, 624. 14 inference is required to conclude he actually knew of the discrepancy. Liability attaches only if Quintana actually knew the named b eneficiary and the beneficiary account number identified different persons. See N.M. Stat. Ann. § 55-4A-207, Official Comment 2. A rational factfind er could infer that Quintana read the wire but did not discover the discrepancy. Quintana testified that if he had discovered a discrepancy, he would not have pai d the wire without obtaining the account holder’s name and phone number from the computer system and phoning to verify that the account holder was expecting a wire. 1 App. at 144. Yet the only indication that Quintana did in fact attempt to obtain the account holder’s name and phone number before inputting the Pan American wire was his statement that upon discovering a discrepancy he no rmally would have followed such a procedure. As noted, Quintana had no actual recollection either way with respect to the Pan American wire. Moreover, the deposition testimony of Nancy Abeyta, Quintana’s15

supervisor, suggested that Quintana inputted the wi re before the courtesy call was made, which is inconsistent with Quintana’s self-de scribed process upon discovery of a discrepancy. Abeyta testified that Quintana brought the wire to her because he could not locate a phone number to make the courtesy call. Abeyta testified that First Security had not entere d the information into its computer system because it was a new account. When Abeyta received the wire, both Quintana’s and Garcia’s initials appeared in the corner of the wire, indicating the wire had been inputted by Quintana and reviewed by Garcia. From this evidence, a rational jury could infer that Qui ntana received the wire and processed it without noticing a conflict and then t ook the wire to Abeyta so she could track down the account name and phone number and make the courtesy call. Material factual disputes remain as to (1) whether Quintana looked at the beneficiary line of the Pan American wire; (2) if s o, whether he noticed the beneficiary name and number were in conflict; and ( 3) if the wire was paid before or after Quintana or any other First Security emplo yee obtained actual knowledge of any such conflict. The district court erred in granting summary judgment in favor of Pan American.
IV. First Security contends the district court erred in concluding that payment16

of the 1st State and McGovern wires did not occur w hen the account was credited and the funds were made available for withdrawal, b ut when the courtesy phone calls were made to Stonebanks. The court held the wires were paid “no earlier than the time at which [a First Security] employee notified Ms. Stonebanks of receipt of each of those orders.” App. at 951. Th e court found that merely crediting her account did not constitute making the funds otherwise available to her, despite uncontradicted evidence that the benef iciary had immediate access to the funds as soon as the wires were processed. Id. We review de novo the district court’s interpretation of N.M. Stat. Ann. § 55-4A-405, which governs payment of wire transfers. See Horace Mann Ins. Co. v. Johnson , 953 F.2d 575, 576 (10th Cir. 1991) (reviewing district court’s in terpretation and application of state law de novo). As noted, the presence or absence of actual knowled ge is determined when the wire transfer is paid. See N.M. Stat. Ann. § 55-4A-207, Official Comment 2. Payment of a wire transfer to a beneficiary is a te rm of art governed by N.M. Stat. Ann. § 55-4A-405(a), which provides: If the beneficiary’s bank credits an account of the beneficiary of a payment order, payment of the bank’s obligation . . . occurs when and to the extent (i) the beneficiary is notified o f 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 are2It is important to note that acceptance of the wi re by the beneficiary’s

bank is different than payment of the wire by the b eneficiary’s bank to the beneficiary. Acceptance is governed by N.M. Stat. Ann. § 55-4A-209; payment is governed by N.M. Stat. Ann. §§ 55-4A-404 & 405. Acceptance and payment may (or may not) occur at the same time under these sections. 17 otherwise made available to the beneficiary by the bank. 2 It is clear from the plain language of the statute that crediting an account is not always sufficient to constitute payment. It is notso clear that crediting an account is never sufficient to constitute payment. In this respect , First Security asserts that crediting a beneficiary’s account may constitute payment under the “otherwise made available” prong of the statute if, when the account is credited, the beneficiary may immediately withdraw the credit ed funds. In rejecting First Security’s contention, the distr ict court relied on § 55- 4A-405, Official Comment 1, and on a hypothetical f ound at 3 James J. White and Robert S. Summers, Uniform Commercial Code , § 23-4, at 33 (4th ed. 1995). At first glance, it appears these authorities consi dered and rejected First Security’s position. This section defines when the beneficiary’s bank pays the beneficiary and when the obligation of the benefici ary’s bank under Section 4A-404 . . . to pay the beneficiary is sati sfied. In almost all cases the bank will credit an account of the benefi ciary when it receives a payment order. In the typical case the beneficiary is paid when the beneficiary is given notice of the right t o withdraw the credit. N.M. Stat. Ann. 55-4A-405, Official Comment 1. Sim ilar reasoning is applied in18

resolving the following hypothetical:

(i) 9:00 A.M., Beneficiary’s bank receives payment order directing Beneficiary’s bank to credit Beneficiary’ s account for $1M. (ii) 9:10 A.M., Beneficiary’s bank credits Benefici ary’s account. (iii) 9:15 A.M., Beneficiary’s bank notifies Benefi ciary of the right to withdraw credit. Barring a deposit contract which states otherwise .

. . acceptance occurs at 9:15 A.M. White & Summers, supra , at 33. At first glance, these explanations seemingly conte mplate the situation presented here – a bank credit to a beneficiary’s a ccount followed by notice to the account holder. A closer look, however, reveal s at least one important difference. In this case, unlike the above example s, First Security notified Stonebanks not to inform her she had the right to w ithdraw the credited funds (as envisioned by 55-4A-405(a)(i)), but simply to inform her the wire had been received and credited to her account (as required b y N.M. Stat. Ann. § 55-4A404(b)). Aside from this factual distinction, the above comments are ambiguous when considered in context and in conjunction with the Expedited Funds Availability Act. As First Security notes, neitherOfficial Comment 1 nor the White & Summers hypothetical indicates if the bank crediting the beneficiary’s account makes the funds immediately available to th e beneficiary or places a hold on the funds for a specified period of time, as per mitted by federal law. The Expedited Funds Availability Act and its accompanyi ng regulations require banks19

to make available to an account holder funds receiv ed by wire transfer no later than the next business day following the business d ay on which the transfer was received. 12 C.F.R. § 229.10(b). We cannot ascertain from the plain statutory langua ge why funds are not “otherwise made available” to a beneficiary and whypayment does not occur when a beneficiary’s bank credits a beneficiary’s a ccount and immediately makes the funds available to the beneficiary. See Tony M. Davis, Comparing Article 4A With Existing Case Law on Funds Transfers: A Series of Case Studies , 42 Ala. L. Rev. 823, 873 (1991) (concluding that when wiredfunds were placed in beneficiary’s account and immediately made availabl e to beneficiary, bank “paid” beneficiary under 4A-405(a)). The drafters of Arti cle 4A intended that payment coincide with the beneficiary’s receipt of a benefit from the payment order. See N.M. Stat. Ann. § 55-4A-405, Official Comment 1. A llowing the beneficiary the right to withdraw certainly qualifies as a benefit to the beneficiary, even if the right is not immediately exercised. As White & Sum mers stated in their discussion of acceptance and payment under Article 4A, “[f]unds are typically ‘made available’ to a beneficiary by allowing the b eneficiary the right to withdraw.” White & Summers, supra , § 23-4, at 32. This interpretation gives effect to all of the prov isions of § 55-4A-405(a) without rendering any of those provisions redundantor equating the mere20

crediting of an account with payment. A bank that credits a beneficiary’s account but holds withdrawal of funds pending notice of the credit to the beneficiary, application of the funds to a debt of the beneficiary, actual withdrawal by the beneficiary, or the mere passage of time does not b estow a benefit upon a beneficiary. The beneficiary has obtained neither a benefit from the transfer nor a right to use the funds. However, a bank that mak es wire funds available simultaneously with an account credit bestows an im mediate benefit upon the beneficiary, regardless of any subsequent notice to the beneficiary of the credit. 1st State and McGovern contend the “credits an acco unt” language in § 55- 4A-405(a) was intended to reach both credits in whi ch funds are immediately made available to the beneficiary and credits in wh ich funds are held until the next business day. If true, crediting an account, regardless of the consequences, is alone insufficient to constitute payment. We re ject this contention, which gives little meaning to subsection (a)(iii) (which provides payment occurs when and to the extent “funds with respect to the order are otherwise made available to the beneficiary by the bank”). If releasing funds to a beneficiary when an account is credited does not constitute making fund s available to the beneficiary, we are hard pressed to concoct a scenario that does . The only indication given by the drafters of Article 4A as to the meaning of (a) (iii) is found in the following

comment:21

[T]he beneficiary’s bank can accept a payment orderby paying a beneficiary. In the normal case of crediting an ac count of the beneficiary, payment occurs when the beneficiary is given notice of the right to withdraw the credit, the credit is app lied to a debt of the beneficiary, or “funds with respect to the order” are otherwise made available to the beneficiary. The quoted phrase co vers cases in which funds are made available to the beneficiary a s a result of receipt of a payment order for the benefit of the b eneficiary but the release of funds is not expressed as payment of the order. For example, the beneficiary’s bank might express a rel ease of funds equal to the amount of the order as a “loan” that w ill be automatically repaid when the beneficiary’s bank re ceives payment by the sender of the order. If the release of fund s is designated as a loan pursuant to a routine practice of the bank, th e release is conditional payment of the order rather than a loan , particularly if normal incidents of a loan such as the signing of aloan agreement or note and the payment of interest are not present. Such a release of funds is payment to the beneficiary under Section 4 A-405(a). Under Section 4A-405(c) the bank cannot recover the moneyfrom the beneficiary if the bank does not receive payment fr om the sender of the payment order that is accepted. N.M. Stat. Ann. § 55-4A-209, Official Comment 5. The comment suggests that payment under the “otherw ise made available” prong occurs where a beneficiary’s bank credits the beneficiary’s account and releases funds to the beneficiary on the condition that the funds are a loan. Because the bank has accepted the order, § 55-4A-40 5(c) not only obligates the bank to pay the beneficiary regardless of whether o r not the release of funds is characterized as a loan, but precludes the bank fro m later collecting the funds from the beneficiary if the sender’s bank does not pay. In other words, such “conditional” payments by the beneficiary’s bank to the beneficiary are not3 Not surprisingly, Comment 5 is susceptible to a d ifferent interpretation.

The comment explains that the first clause of subse ction (a)(iii) (“funds with respect to the order”) “covers cases in which funds are made available to the beneficiary as a result of receipt of a payment ord er for the benefit of the beneficiary but the release of funds is not express ed as payment of the order.” Here, the release of funds by First Security was expressed as payment of the order. Thus, it could be argued that subsection (a )(iii) applies only to releases of funds by a bank where the bank mischaracterizes the release of funds as a loan or other debt instrument to avoid Article 4A’s risk of loss provisions regarding acceptance and payment. We do not believe such a n arrow interpretation of subsection (a)(iii) is appropriate. First, the fac t that the subsection “covers” cases where funds are made available to the benefic iary but not expressed as payment of the transfer is no indication that the s ubsection only covers such cases. The hypothetical in the comment depicts one of many situations in which funds otherwise could be made available to the bene ficiary of a wire transfer. Second, there is no substantive distinction between making funds available to the beneficiary under the guise of a loan (which is con sidered payment of the order and not a loan in any event) and making funds avail able to the beneficiary with the express concession that release of the funds co nstitutes payment of the order. 22 enforceable. As relevant here, however, the critic al point is that under the scenario constructed in the comment, payment is eff ective even if subsequent notice is not given to the beneficiary. If, “pursu ant to a routine practice of the bank,” the funds are released when the beneficiary’ s account is credited, the situation is no different than the situation here. An order is received, the beneficiary’s account is credited, the funds are re leased to the beneficiary and made available for immediate withdrawal, and payment occurs. 3 1st State and McGovern also argue that a beneficiary does not receive a benefit from the credit, even if the funds immediat ely are made available, unless the beneficiary has knowledge of the credit. This ignores the fact that by the23

terms of § 55-4A-405 notice is merely one of the me thods by which payment
occurs. See 6A William D. Hawkland & Lary Lawrence, Uniform Commercial Code Series § 4A-405:01 (1993 & Supp. 1999) (“Subsection 4A-40 5(a)(iii) discharge of the subsection 4A-404(a) obligation by making the funds otherwise available to the beneficiary does not literally req uire the beneficiary bank to give notice to the beneficiary, unlike subsection 4A-405 (a)(i).”) Notice (and thus knowledge of the credit on the part of the benefici ary) is not required to effectuate payment if the beneficiary gains a benef it by having the funds applied to a debt of the beneficiary or if the funds otherw ise are made available to the beneficiary. Moreover, whether funds are immediate ly available to an account holder following a credit is generally not a matterwithin the scope of Article 4A, but, assuming compliance with other federal regulat ions, is a matter of contract between the beneficiary’s bank and the beneficiary. Hence, a beneficiary will have knowledge beforehand that any time the benefic iary’s account is credited the funds are immediately available for use. As 1st State and McGovern point out, N.M. Stat. Ann . § 55-4A-404(b) specifically requires that a bank “notify the benef iciary of receipt of the order before midnight of the next funds-transfer business day following the payment date.” Notification under 404(b) is unrelated to the separate provisions of § 55- 4A-405 governing payment. As such, while the notic e required by 404(b) may4We have found only one case on the precise issue before this court. In

Aleo Int’l, Ltd. v. Citibank , 612 N.Y.S. 2d 540, 541 (1994), a New York trial court ruled that payment occurred upon credit to an account. The court did not explain its reasoning. 24 also constitute payment under 405(a)(i), it is not the event that constitutes payment if, before notice is given, either of the e vents described in 405(a)(ii) and (iii) have occurred. As previously noted, our revi ew of the record persuades us that First Security’s “courtesy calls” were intende d to satisfy the notice required by 404(b), rather than as a final step to effective payment under 405(a)(i). In summary, we hold that payment may occur under § 55-4A-405(a)(iii) when a beneficiary’s account is credited and the fu nds immediately are made available to the beneficiary. This interpretation is consistent with the plain language of 405(a) and gives effect to all of its provisions. 4
V. We REVERSE the entry of summary judgment in favor o f Pan American. We REVERSE the district court’s legal ruling that p ayment does not occur under N.M. Stat. Ann. § 55-4A-405(a)(iii) when a benefici ary’s account is credited and the funds immediately are made available for withdr awal by the beneficiary and REMAND to the district court for further proceeding s. We decline to consider Pan American’s cross-appeal regarding damages as th e issues may not arise on remand.25