IN THE SUPREME COURT OF MISSISSIPPI

NO. 97-CT-00589-SCT

CREDIT LYONNAIS NEW YORK BRANCH

v.

ALFRED RANDOLPH KOVAL

ON WRIT OF CERTIORARI

DATE OF JUDGMENT: 4/4/97

TRIAL JUDGE: HON. JOHN H. WHITFIELD

COURT FROM WHICH APPEALED: HARRISON COUNTY CIRCUIT COURT

ATTORNEY FOR APPELLANT: MICHAEL LOUIS FONDREN

ATTORNEY FOR APPELLEE: FLOYD J. LOGAN

NATURE OF THE CASE: CIVIL - OTHER

DISPOSITION: REVERSED - 8/5/1999

MOTION FOR REHEARING FILED: 08/16/99; denied 09/23/99

MANDATE ISSUED: 09/30/99

EN BANC.

BANKS, JUSTICE, FOR THE COURT:

¶1. This matter which is before us on a writ of certiorari presents an application of the

"discharge for value" or "innocent third party creditor" doctrine with respect to

restitution under Article 4A of the Uniform Commercial Code. The Court of Appeals

reversed a judgment based on a circuit court judgment which affirmed a county court

jury verdict in favor of a creditor who received a duplicate wire of funds. We granted

this certiorari because this case presents an application of a rarely used doctrine in our

state.

I.
¶2. Alfred Randolph Koval , a Mississippi citizen, had $86,986.46 on deposit with a

Luxemburg branch of Bank of Credit and Commerce International ("BCCI") when

BCCI was liquidated.

¶3. The BCCI liquidator notified Koval that Association pour la Guarantie des Depots,

Luxemburg's deposit protection scheme ("DPS"), would forward $14,450.45 to his

bank account, the maximum amount payable by DPS. DPS is Luxemburg's equivalent

to the FDIC.

¶4. DPS ordered the bank holding its deposits, Banque et Caisee d'Epargne de L'Etat

("Banque"), to wire $14,403.54 ($14,450.45 less wire charges) to Koval. Banque

instructed Credit Lyonnais, its correspondent bank in the U.S., to wire the funds. On

July 12, 1993, Credit Lyonnais wired $14,403.54 to Hancock Bank to the account of

Koval. The next day, Credit Lyonnais mistakenly repeated the wire.

¶5. Realizing its mistake, some months later, Credit Lyonnais asked Koval return the

second $14,403.54 mistakenly wired to him. Koval refused, arguing that since he had a

claim against BCCI, he would keep the money.

¶6. BCCI did not have an account with Credit Lyonnais. The funds in the second wire

belonged to Credit Lyonnais, not to BCCI, its liquidator or DPS.

II.

¶7. Credit Lyonnais sued Koval in the County Court of Harrison County to recover

the funds sent by the duplicate wire ($14,403.54), claiming that it erroneously wired the

funds to Hancock Bank for the account of Koval. The jury returned a verdict for

Koval, and judgment in Koval's favor was entered.

¶8. Credit Lyonnais appealed to the Circuit Court of Harrison County which affirmed

the county court. Credit Lyonnais then appealed to this Court, and the appeal was

assigned to the Court of Appeals. The Court of Appeals reversed and rendered

judgment in favor of Credit Lyonnais. The Court of Appeals found that Koval was

owed the money mistakenly paid to him, that Koval was told by the BCCI liquidator

that he would get one payment of $14,500 less wire charges, and that when Koval got

two wires, he should have been on notice that the second wire was not intended for

him -- that it was a mistake.

¶9. Koval filed a petition for writ of certiorari claiming that the Court of Appeals'

decision was contrary to Article 4A, specifically § 75-4A-205. Koval claims that under

the "discharge for value" rule of restitution of Article 4A, he can keep the funds from

the duplicate wire transfer because he was owed money by BCCI and did not know

that the second wire was a mistake.
III.

¶10. This is a case to recover funds sent in error by a duplicate wire transfer. Article

4A of the UCC, Miss. Code Ann.§ § 75-4A-101 et seq. (Supp. 1998), governs funds

transfers.

¶11. The specific issue in this appeal is how does Article 4A adjust the equities when

funds are mistakenly wired twice. Article 4A contains a specific provision applicable to

this situation-to-wit: § 75-4A-205. The pertinent portion of § 75-4A-205 provides:

If the funds transfer [wire transfer] is ... [an] erroneous payment order ... [such as

a duplicate wire transfer], 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.

Miss. Code Ann. § 75-4A-205(a)(2) (Supp. 1998).(1)

¶12. Section 75-4A-205(a)(2) instructs that Credit Lyonnais can sue Koval to recover

the funds sent by the duplicate wire transfer under the legal theories of mistake and

restitution.

¶13. Koval admits that recovery, if any, against him lies under restitution but asserts

that the "discharge of value" rule of restitution, not the common law "mistake of fact"

rule of restitution, governs this case.

¶14. While we have not yet addressed the issue of restitution in relation to Article 4A,

we have adopted the "discharge for value" or "innocent third-party creditor" rule of

restitution as set forth in the Restatement, Restitution Sec. 14.(2) Omnibank v. United

S. Bank, 607 So. 2d 76, 92 (Miss. 1992); see also Industrial Indem. Co. v. Truax

Truck Line, Inc., 45 F.3d 986 (5th Cir. 1995)(applying Mississippi law, citing

Omnibank, and applying discharge for value); National Benefit Adm'rs, Inc. v.

Mississippi Methodist Hosp. & Rehabilitation Ctr., Inc., 748 F. Supp. 459 (S. D.

Miss. 1990) (concluding that Mississippi law of restitution is based upon unjust

enrichment and reasoning, in concert with the Restatement and other jurisdictions

applying it, that an innocent third-party creditor is not unjustly enriched).

¶15. This discharge for value rule is particularly appropriate for wire transfers for the

reasons stated in the analysis of the New York Court of Appeals in Banque Worms v.

BankAmerica Int'l, 928 F.2d 538 (2d Cir. 1991), on certified question, 570 N.E.2d

189 (N.Y. 1991). The discharge for value rule of restitution is an appropriate defense

to cases seeking recovery of funds mistakenly wired for two reasons. First, it achieves

the degree of finality, or phrased another way certainty, sought to be achieved by the

drafters of Article 4A. Second, national uniformity was another goal of the drafters of
Article 4A, and our holding places Mississippi in accord with the majority of the few

other appellate courts which have addressed this question although some of those

other cases addressed pre-Article 4A scenarios in view of the goals and objectives of

Article 4A.

¶16. Banque Worms v. BankAmerica Int'l, 928 F.2d 538 (2d Cir. 1991), on

certified question, 570 N.E.2d 189 (N.Y. 1991), is the preeminent case on erroneous

wire transfers and is a well-reasoned decision meriting mention by us. In the Banque

Worms case, Spedley Securities, Ltd., instructed Security Pacific International Bank

to wire approximately $2 million to Banque Worms at BankAmerica. Banque Worms

was a creditor of Spedley Securities. Just hours later, Spedley Securities told Security

Pacific to disregard the first wire instructions and to wire the $2 million to another

creditor, National Westminster Bank. Later that day, Security Pacific wired $2 million

to Banque Worms at BankAmerica but within hours notified BankAmerica the wire

was a mistake. 928 F.2d at 539. Security Pacific then wired the $2 million to National

Westminster as the replacement instructions directed. Pursuant to an indemnity from

Security Pacific, BankAmerica returned the funds to Security Pacific. Banque Worms,

however, refused to agree to BankAmerica's return of the funds to Security Pacific.

BankAmerica asked Security Pacific to return the funds pursuant to the indemnity

agreement. Security Pacific attempted to get funds from Spedley Securities to cover

the indemnity, but, by that time, Spedley Securities had entered into involuntary

liquidation. Id. at 540.

¶17. Banque Worms sued BankAmerica in federal district court in New York to

recover the funds. BankAmerica filed a third-party complaint against Security Pacific.

Security Pacific filed a counterclaim against Banque Worms and BankAmerica seeking

a judgment that Security Pacific was entitled to the funds regardless of which bank was

in possession of the funds at the time of judgment. Later, Security Pacific returned the

funds to BankAmerica which credited the funds to Banque Worms's account.

BankAmerica was dismissed from the suit, leaving Banque Worms and Security

Pacific to fight over the funds. Id.

¶18. Security Pacific claimed that it mistakenly wired the funds and was entitled to the

funds under the mistake of fact rule of restitution embodied in New York common law

via New York caselaw. Banque Worms asserted it was entitled to keep the funds under

the discharge for value rule of restitution adopted by the Restatement of Restitution.

The federal district court said that if the mistake of fact rule of restitution governed the

case, Security Pacific was entitled to the funds mistakenly paid unless Banque Worms,

relying on the payment, changed its legal position to such an extend that requiring a

refund would be unjust. The federal court stated that if, however, the discharge for

value rule of restitution applied to the case, Banque Worms could kept the funds even

though mistakenly paid since it received the funds from Security Pacific in discharge
of the debt owed by Spedley Securities to Banque Worms but only if Banque Worms

made no misrepresentation and had no notice of Security Pacific's mistake. The

federal district court found that the mistake of fact rule of restitution was part of New

York caselaw. The federal district court, however, ruled in Banque Worms's favor,

finding that although New York had not adopted the Restatement of Restitution, the

section of the Restatement setting forth the discharge for value rule of restitution was

based upon a New York case. Id. Security Pacific appealed to the United States Court

of Appeals for the Second Circuit which certified the issue to the New York Court of

Appeals. Id. at 541.

¶19. Although the wire transfer involved in the Banque Worms case occurred prior to

the adoption of Article 4A, the New York Court of Appeals heavily relied on Article

4A's purposes and goals in deciding which rule of restitution applied to the wire

transfer - i.e., the common law "mistake of fact" rule of restitution or the "discharge

for value" rule of restitution adopted by the Restatement of Restitution. The Banque

Worms court held that the "discharge for value" rule applied to the electronic funds

transfer involved in the suit since it was consistent with and achieved the policy goal of

finality sought by the drafters of Article 4A. As the New York Court of Appeals

explained its rationale behind its holding,

Although no provision of article 4-A calls, in express terms, for the application of

the "discharge for value" rule, the statutory scheme and the language of various

pertinent sections, as amplified by the Official Comments to the UCC, support

our conclusion that the "discharge for value" rule should be applied in the

circumstances here presented.

570 N.E.2d at 196.

¶20. As the Banque Worms court explained:

When a beneficiary receives money to which it is entitled and has no knowledge

that the money was erroneously wired, the beneficiary should not have to wonder

whether it may retain the funds; rather, such a beneficiary should be able to

consider the transfer of funds as a final and complete transaction, not subject to

revocation.

Id.

¶21. Under the discharge for value rule of restitution, when a beneficiary receives

money to which he is entitled and has no knowledge that the money was erroneously

wired, the beneficiary can treat the wire as final and not repay funds erroneously wired.

There, however, are two conditions precedent to the application of the discharge for

value rule of restitution. First, the beneficiary receiving the funds transfer must be
entitled to receive money in payment of a debt. It is not necessary, however, that the

originator be the beneficiary's debtor. Section 75-4A-205 provides that the recovery of

an erroneous payment may be had as provided by the rules for mistake and restitution

(i.e. the discharge for value rule). Discharge for value requires that a benefit, such as a

payment, be bestowed (1) on the creditor; (2) by a third person; (3) in discharge of the

debt owed. For example, in General Elec. Capital Corp. v. Central Bank, 49 F.3d

280 (7th Cir. 1995), the originator was a customer of the debtor, whose attempted

payment to the debtor was mistakenly deposited to the debtor's creditor's account.

Despite the fact that the originator (i.e. the debtor's customer), was not indebted to the

creditor/beneficiary, the Seventh Circuit in General Elec. Capital Corp. held that

under the discharge for value rule, the bank was not entitled to obtain restitution from

the creditor.

¶22. The discharge for value rule, or the innocent-third-party-creditor rule, has also

been applied in an analogous situation. Numerous courts have held that an insurer is

not entitled to recover payments erroneously made to an insured's health care provider.

See National Benefit Adm'rs, Inc. v. Mississippi Methodist Hosp. &

Rehabilitation Ctr., Inc., 748 F. Supp. 459, 464-65 (S.D. Miss. 1990). See also

Time Ins. Co. v. Fulton-DeKalb Hosp. Auth., 438 S.E.2d 149, 152 (Ga. Ct. App.

1993); St. Mary's Med. Ctr., Inc. v. United Farm Bureau Family Life Ins. Co.,

624 N.E.2d 939 (Ind. Ct. App. 1993); Lincoln Nat. Life Ins. Co. v. Brown Schs.,

Inc., 757 S.W.2d 411 (Tex. Ct. App. 1988). Similarly, DPS, as the insurer, via Credit

Lyonnais, made a payment to discharge a debt owed by BCCI; and Koval should not

be required to refund the payment unless he had notice of the mistake.

¶23. Second, the beneficiary must not have any knowledge that the funds were

erroneously wired. If either of these two conditions is lacking, the discharge for value

rule does not apply.

IV.

¶24. It is precisely this rule which was applied in the county court. The jury was

properly instructed and rendered a verdict for Koval. Our only task is to determine

whether the state of the evidence was such that we can say as a matter of law that

Koval had "notice of the mistake."

¶25. The discharge for value rule "is specific application of the underlying principle of

bona fide purchase." Comment, Restatement, Restitution Sec. 14. It is appropriate

then that we look to our precedents regarding bona fide purchasers on the issue of

notice. Our statutory and case law indicates that a purchaser is charged with actual

notice of facts of which he has actual knowledge; and, where the purchaser has

knowledge of facts which would cause a reasonable person to inquire, he is charged
with inquiry notice of those facts which could be uncovered by diligent investigation.

Miss. Code Ann. § 75-1-201(25) (1972) defines notice as follows:

A person has "notice" of a fact when

(a) He has actual knowledge of it; or

(b) He has received a notice or notification of it; or

(c) From all the facts and circumstances known to him at the time in question he

has reason to know that it exists.

A person "knows" or has "knowledge" of a fact when he has actual knowledge of

it. "Discover" or "learn" or a word or phrase of similar import refers to

knowledge rather than to reason to know. The time and circumstances under

which a notice or notification may cease to be effective are not determined by this

code.

¶26. This Court has held that a purchaser of land is on notice as to facts which would

be disclosed upon diligent investigation, if there is "any recital sufficient to put a

reasonably prudent man on inquiry as to the sufficiency of the title." Simmons v.

Mississippi Transp. Comm'n, 717 So. 2d 300, 303 (Miss. 1998) (quoting Bedford v.

Kravis, 622 So. 2d 291, 295 (Miss. 1993) (quoting Florida Gas Exploration Co. v.

Searcy, 385 So. 2d 1293, 1296 (Miss. 1980) (quoting Dead River Fishing &

Hunting Club v. Stovall, 147 Miss. 385, 395-96, 113 So. 336, 337-38 (1927). See

also Mills v. Damson Oil Corp., 686 F.2d 1096, 1101-02 (5th Cir. 1982) (citing

Baldwin v. Anderson, 103 Miss. 462, 60 So. 578 (1913); Bowen v. Thornton, 227

Miss. 562, 86 So. 2d 505 (1956) (holding that, under Mississippi law, a purchaser is a

bona fide purchaser for value without notice, unless there is actual notice or

circumstances which would put a purchaser on inquiry notice); Johnson v. Carter,

193 Miss. 781, 11 So. 2d 196 (1943).

¶27. In Board of Educ. v. Hudson, 585 So. 2d 683, 687 (Miss. 1991), it was held that

a lessee of sixteenth section land was not a bona fide purchaser for value without

notice where the lease price, paid by his predecessor in interest, was unconscionably

inadequate. "[W]hatever is enough to excite attention or put a party on inquiry, is

notice of everything to which such attention or inquiry might reasonably lead." Id.

(quoting Baldwin v. Anderson, 103 Miss. 462, 60 So. 578 (1913). This Court has

further stated that:

... the rule is that "when, in respect to a matter in which [one] has a material

interest, a person has knowledge of such facts as to excite the attention of a
reasonably prudent man and to put him upon guard and thus to incite him to

inquiry, he is chargeable with notice, equivalent in law to knowledge, of all those

further relevant facts which such inquiry, if pursued with reasonable diligence,

would have disclosed.". . .

Crawford v. Brown, 215 Miss. 489, 503, 61 So. 2d 344, 350 (1952) (quoting First

Nat'l Banks v. Johnson, 177 Miss. 634, 643, 181 So. 11, 14 (1936)). Also, under the

restitution theory of money had and received, this Court held that a creditor was not

entitled to retain a payment mistakenly made, even though the debtor owed the creditor

a valid debt, where the check indicated that it was intended as payment to another,

thereby putting the creditor on notice of the mistake. Milliken & Michaels, Inc. v.

Fred Netterville Lumber Co., 676 So. 2d 266, 269 (Miss. 1996).

¶28. Here, the record supports the jury's finding that Koval made no

misrepresentations which induced the duplicate payment and that Koval did not have

notice of Credit Lyonnais's mistake. The fact that Koval knew that DPS was to pay

him around $13,000 as an insurer of his deposit, is not necessarily determinative,

where a jury could reasonably find that such knowledge did not amount to notice of

Credit Lyonnais's mistake. And the record facts reasonably support just such a

finding.

¶29. Koval testified that it was his understanding that he would receive money from

DPS and from the BCCI liquidators. He knew approximately how much DPS would

be paying; but, he did not know how much he would get from the liquidators. Prior to

being informed by Credit Lyonnais of the erroneous deposit, Koval discovered that he

had additional funds in his account. Upon his discovery, Koval testified that he was

not aware of the source of the funds, but assumed that it was associated with BCCI.

Koval also stated that the only way to determine who deposited the funds was to

speak to a someone in customer service, which he did not do. Also, Koval's bank

statement does not show the originator of the two deposits; the statement merely

designates them as deposits. It appears that the funds were wired directly into Koval's

account. Koval did not know the funds were there until sometime later. It was not until

some months later, according to his testimony, that Credit Lyonnais asserted an error

had been made. Under the circumstances the jury cannot be faulted for concluding that

Koval did not have notice of the mistake.

CONCLUSION

¶30. We reverse the judgment of the Court of Appeals and reinstate the circuit court

judgment.

¶31. THE JUDGMENT OF THE COURT OF APPEALS IS REVERSED AND

THE JUDGMENT OF THE CIRCUIT COURT IS REINSTATED.
PRATHER, C.J., SULLIVAN AND PITTMAN, P.JJ., AND McRAE, J.,

CONCUR. SMITH, J., CONCURS IN PART AND DISSENTS IN PART WITH

SEPARATE WRITTEN OPINION JOINED BY MILLS, WALLER AND

COBB, JJ.

SMITH, JUSTICE, CONCURRING IN PART AND DISSENTING IN

PART:

¶32. I agree with the majority and have no doubt that the discharge for value rule of

restitution analysis applies in this case. Maj. Op. at 9. However, the determinative fact

in this case is that Koval knew that Credit Lyonnais erroneously wired the funds to him

is the crucial determination to be made in this case. Because the facts support a

holding that Koval was aware of Credit Lyonnais's error in wiring him the funds twice,

I respectfully dissent to the majority's holding that Koval did not have such knowledge.

Maj. Op. at 12.

¶33. Article 4A of the UCC, Miss. Code Ann. § § 75-4A-101 et seq. (Supp 1998),

governs wire transfers. The issue in this appeal is how does Article 4A adjust the

equities when funds are mistakenly wired twice. Article 4A contains a specific

provision applicable to this situation - to-wit: § 75-4A-205.

¶34. The pertinent portion of § 75-4A-205 provides

If the funds transfer [wire transfer] is ... [an] erroneous payment order ... [such as

a duplicate wire transfer], 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.

Miss. Code Ann. § 75-4A-205(a)(2) (Supp. 1998).(3)

¶35. Section 75-4A-205(a)(2) instructs that Credit Lyonnais can sue Koval to recover

the funds sent by the duplicate wire transfer under the legal theories of mistake and

restitution. Under the discharge for value rule of restitution, when a beneficiary receives

money to which he is entitled and has no knowledge that the money was erroneously

wired, the beneficiary can treat the wire as final and not repay funds erroneously wired.

There, however, are two conditions precedent to the application of the discharge for

value rule of restitution. First, the beneficiary receiving the funds transfer must be

entitled to receive the money from the originator of the wire. Second, the beneficiary

must not have any knowledge that the funds were erroneously wired. If either of these

two conditions is lacking, the discharge for value rule does not apply. See Banque
Worms v. BankAmerica Int'l, 928 F.2d 538 (2d Cir. 1991), on certified question,

570 N.E.2d 189 (N.Y. 1991) (the preeminent case on erroneous wire transfers).

¶36. The discharge for value rule of restitution does not apply to Koval's case for two

reasons. First, Koval was not entitled to receive from the originator (DPS) the funds in

the erroneous, duplicate wire transfer. BCCI owed Koval $86,986.46, the amount of

money which Koval had on deposit at BCCI at the time BCCI was liquidated. DPS

only owed Koval $14,403.54, which was the amount of money to which Koval was

entitled under the Luxemburg deposit protection program. Even Koval admitted that

DPS only owed him $14,403.54. The $14,403.54 debt owed by DPS to Koval was

satisfied by the first wire transfer. The sender/originator of the second wire transfer

was DPS, not BCCI, and the funds in the second wire transfer belonged to Credit

Lyonnais, not to BCCI; thus, Koval was not entitled to receive from DPS the funds

transmitted by the second wire transfer.

¶37. Second and most importantly, Koval knew or should have known the second

wire transfer was a mistake. Koval testified at trial that he was told that DPS would

send him one payment of $14,500 less wire charges but that he received one payment

of $14,500 less wire charges on one day and a second payment of $14,500 less wire

charges on the next day. Koval claimed at trial that he did not know who wired the

funds. The advice on the second wire transfer clearly shows that the funds were wired

at the direction of DPS. Without question, Koval was on notice that the second wire

was not intended for him since the debt owed by DPS to Koval had been paid in full

by the first wire transfer. Koval cannot claim that he had no knowledge that the second

wire was a mistake.

¶38. However, the facts of Koval's case does not fit the discharge for value rule of

restitution, and, accordingly, the discharge for value rule of restitution was not a

defense available to Koval. Credit Lyonnais sued Koval to collect $14,403.45

mistakenly paid. The discharge for value rule of restitution was not a defense available

to Koval.(4) The money sent by the second wire belongs to Credit Lyonnais. Credit

Lyonnais did not owe Koval any money. Koval did not have any right to kept money

belonging to Credit Lyonnais.

¶39. Therefore, the Court of Appeals properly found that Credit Lyonnais was entitled

to recover the funds erroneously wired to Koval by the duplicate wire transfer. We

should affirm the Court of Appeals' judgment.

¶40. Accordingly, I respectfully dissent.

MILLS, WALLER AND COBB, JJ., JOIN THIS OPINION.
1. The sender is the person giving the instruction to the receiving bank. The receiving bank is the bank to

which the sender's instruction is given. The beneficiary is the person to whose account the funds are being

wired. Miss Code Ann. § 75-4A-103(Supp. 1998). DPS is the sender. Credit Lyonnais is the receiving

bank. Koval is the beneficiary.

2. Restatement, Restitution § 14, the discharge for value rule, provides in pertinent part: 

(1) A creditor of another or one having a lien on another's property who has

received from a third person any benefit in discharge of the debt or lien, is under

no duty to make restitution therefor, although the discharge was given by mistake

of the transferor as to his interests or duties, if the transferee made no

misrepresentation and did not have notice of the transferor's mistake.

* * * *

3. The sender is the person giving the instruction to the receiving bank. The receiving

bank is the bank to which the sender's instruction is given. Beneficiary is the person to

whose account the funds are being wired. Miss. Code Ann. § 75-4A-103 (Supp. 1998)

. DPS is the sender. Credit Lyonnais is the receiving bank. Koval is the beneficiary.

4. Koval raised other defenses to Credit Lyonnais's suit to collect $14,403.54. The

facts did not support any of the defenses asserted by Koval.