Problem Set 11
11.1. Your first appointment this week is with Nicholas Nickleby,
who tells you he has a problem related to a payment from Walter Bray.
Bray owed Nickleby $100,000 on a promissory note; the entire sum was due
to Nickleby on April 1. Accordingly, on Monday March 30, Bray asked his
bank (Gride National Bank) to send a wire transfer to Nickleby’s account
at Cheeryble State Bank. Gride sent a telex to Cheeryble executing
Bray’s request on the morning of Tuesday March 31, calling for payment
to Nickleby on April 1. Pursuant to a preexisting agreement between
Gride and Cheeryble, Cheeryble was entitled to obtain payment for that
order from Gride’s account at Cheeryble. At the time, that account
contained more than enough funds to cover the Nickleby order.
Unfortunately, the Nickleby order was misplaced on the desk of the
Cheeryble clerk (Timothy Linkinwater). Accordingly, Cheeryble did not
accept or reject the order and did not notify Nickleby that the payment
from Bray had come in by wire. On Friday, April 3, the Comptroller of
the Currency closed Gride and appointed the Federal Deposit Insurance
Corporation receiver to supervise the winding up of Gride’s affairs.
Because Gride had withdrawn all of its funds late Thursday afternoon, no
funds remained in the Gride account at Cheeryble.
(a) Nicholas is frustrated that he has
not yet been paid. Given the fact that it is now April 6, five days
late, can he pursue Bray for the $100,000? Alternatively, if he cannot
sue Bray for the money, Nickleby wants to know if he is entitled to
payment from Cheeryble. UCC §§ 4A-209(b), 4A-401, 4A-404(a), 4A-406.
(b) How would your answers to Nickleby
differ if Linkinwater had rejected the order immediately after Cheeryble
received it? {You should assume that Linkinwater’s rejection of the
Nickleby order was not a breach of Cheeryble’s agreement with Gride.}
UCC § 4A-210(a).
(c) How would your answers to Nickleby
differ if the payment to Cheeryble had been made by Fedwire instead of
through an agreement that Cheeryble debit Gride’s account with Cheeryble?
UCC §§ 4A-209(b)(2), 4A-209 comment 6, 4A-403(a)(1); Regulation J, § 210.29(a).
11.2. As you walk back into your office after your meeting
with Nicholas Nickleby, your secretary tells you that Ben Darrow is holding on the
telephone. When you pick up the telephone, he tells you that he is
handling the bank’s wire-transfer desk today while another officer is on
vacation. Because he has had only outgoing wires during the past hour,
FSB’s working balance at the Federal Reserve has been declining
constantly. As Ben is speaking to you, the computer terminal that shows
that balance indicates that the current balance is down to $3 million.
The reason for Ben’s call to you is that Ben has just received a request
from another officer to send out a wire for $5 million. When Ben told
the officer that FSB did not have enough money to send the wire right
now, the officer told Ben that the bank regularly sends wires out for up
to $20 million more than it has on deposit at the Federal Reserve. Ben
is calling you because he wants to know how FSB possibly could send out
a wire paying money that it does not yet have. Can the other officer be
correct? Why would the Federal Reserve let FSB do this?
11.3. Worn out from your hard morning, you decide to have
lunch at the Drones Club. Unfortunately, you have not even reached your
table when you see Jeeves approaching. Recalling your discussion with
Jeeves in Problem 8.5, you resolve never to eat lunch at the Drones Club
again. Nevertheless, you graciously agree to entertain his explanation
of Bertie Wooster’s problem of the day. It appears that Bertie has
continued his never-ending search for the perfect antique silver cow
creamer, as well as his perennial indecisiveness. Today’s problem arose
yesterday at lunch when Bertie saw an advertisement in which one Galahad
Threepwood offered a particularly elegant silver cow creamer for “only”
$450,000. Having consumed a few more martinis than most would consider
conducive to proper business judgment, Bertie immediately telephoned
Threepwood and told him he wanted the creamer. He then called his banker
and directed him to send a $450,000 wire to Threepwood for the purchase
price (using his general business account).
When Bertie woke this morning, he learned from Jeeves that the
Threepwood creamer could not possibly be worth more than $75,000.
Accordingly, he wants you to “stop payment” on the wire. You agree to
call Bertie’s banker to inquire about the matter. When you do so, you
learn that Bertie’s bank sent the wire late last night (apparently by
means of some bilateral arrangement between the banks), and that
Threepwood’s bank has received the wire but not yet notified Threepwood
or taken any other action. Can you cancel the wire for Bertie? UCC §
4A-211 & comment 3.
11.4. At the end of the day, Ben Darrow calls you back to ask
your advice about two other mistakes that he fears he made during the
course of the day. The first relates to a wire-transfer request that
Carol Long submitted asking the bank to transfer $750,000 from her
checking account. She explained to Ben that she was transferring the
funds out of her account at FSB (which does not bear interest) to an
account at Wells Fargo that bears interest at 8% per annum. Although she
submitted the request in time for it to be executed today, and although
the funds were in her account at the time, Ben nevertheless neglected to
send out the wire. As he calls, it is too late to send the wire out
until tomorrow morning. He is getting ready to call Carol and apologize,
but before he calls her he wants to know what damages she can seek from
the bank. In particular, he wants to know if Carol’s damages will be
likely to exceed the interest that Ben’s bank can earn by investing the
funds until the time that it transfers them as Carol requested. Assuming
that the bank’s agreement with Carol does not address the issue of
damages, what do you tell Ben? UCC §§ 4A-210(b), 4A-506(b), 4A-506
comment 2.
11.5. Ben Darrow’s last problem relates to a payment order
that he received by electronic mail this morning (April 6) from Matacora
Realtors, an accountholder at his bank. The message asked FSB to make a
$500,000 payment to a designated account of Jasmine Ball that also is at
FSB. Priding himself on his efficiency, Darrow immediately sent back a
message accepting the order, deducted the funds from Matacora Realtor’s
account, and called Jasmine to tell Jasmine that the funds were
available. Jasmine promptly came down to FSB and had the funds wired to
an account in her name at a bank in Mexico. Darrow became worried a few
minutes ago when he received a second message from Matacora Realtors
canceling the Ball payment order. On reviewing the file, Darrow noticed
that the payment order that he received this morning stated at the top:
“Transmission Date: April 6; Payment date: April 8.” Darrow is concerned
because he is not sure that he can recover the funds from Ball. Does
Darrow have to return the funds to the account of Matacora Realtors? UCC
§§ 4A-209(b) & (d), 4A-211(b), 4A-401, 4A-402(c) & (d).
11.6. Your last call of the day is from Carl Eben at
Riverfront Tools, Inc. (introduced in Problem Set 2). His problem arises
out of a contract with California Pneumatic Tools (“CPT”). Riverfront
sold CPT $450,000 worth of tools. The contract called for CPT to pay for
the tools with a cashier’s check from Wells Fargo. Notwithstanding that
provision in the contract, CPT instead attempted to wire funds to an
account of Riverfront at Texas American Bank (“TAB”). Riverfront had
accepted payment by transfers into that account in several earlier
contracts, but has not been using that account for several months
because of Carl’s decision to phase out Riverfront’s relationship with
TAB.
In any event, Wells Fargo (CPT’s bank) accepted CPT’s payment order,
debited CPT’s account, and executed the transfer to TAB. TAB, in turn,
notified Carl that it had received the funds for Riverfront. Carl
immediately called CPT to complain, but later that afternoon (before CPT
could respond) the Comptroller of the Currency closed TAB and appointed
the Federal Deposit Insurance Corporation receiver to supervise the
winding up of TAB’s affairs. The receiver informed Carl this morning
that Riverfront probably would obtain very little from the account, and
certainly would be unable to obtain the entire $450,000. Carl wants to
know if Riverfront still has a claim against CPT. What do you tell him?
If he does have a claim against CPT, does CPT have any remedy? UCC §§
4A-209(b)(1), 4A-402(c) & (d), 4A-404(a), 4A-406(b).
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