TRUSTMARK INS. CO. V. BANK ONE
48 P.3d 485 (Ariz. 2002)

GEMMILL, Judge.
If a banking customer sends a bank a letter of instructions requesting wire transfers of funds upon future occurrences of a specified balance condition in the customer’s account, does the letter of instructions constitute a “payment order” under Article 4A of Arizona’s Uniform Commercial Code (“UCC”)? We address this question * * * in this decision.
Bank One, Arizona, NA (“Bank One”) appeals from a jury verdict for Trustmark Insurance Company (“Trustmark”) on Trustmark’s claim under Article 4A of the UCC and from the trial court’s award of attorneys’ fees to Trustmark. * * * * We reverse the judgment on the UCC claim * * *. * * * *

FACTUAL AND PROCEDURAL BACKGROUND

This case involves a commercial dispute between Bank One and Trustmark over a wire transfer arrangement. In February 1995, Trustmark set up a deposit account (“Account One”) at Bank One governed by Bank One’s deposit account rules. At the same time, Trustmark executed a wire transfer agreement with Bank One.
In May 1995, Trustmark sent Bank One a letter (the “Letter of Instructions”) regarding a second deposit account (“Account Two”). Account Two was subject to the same deposit account rules and wire transfer agreement as Account One. In the Letter of Instructions, Trustmark instructed Bank One to (1) retain a daily balance of $10,000 in Account Two and (2) transfer funds in Account Two automatically to a Trustmark account at the Harris Bank (“Harris Account”) whenever Account Two reached a balance of $110,000 or more. In September 1995, Trustmark’s Arizona agent began depositing funds into Account Two. Bank One began transferring funds to the Harris Account whenever the Account Two balance rose above $110,000.
In August 1996, Bank One automated its wire transfer functions and consolidated its local departments into a central wire transfer department. Under the automated process, each account from which wire transfers were anticipated needed a new wire transfer agreement. In preparation, Bank One sent all of its wire transfer customers, including Trustmark, a letter dated July 1, 1996 informing the customers that Bank One required a new funds transfer agreement for each account from which wire transfers were anticipated. The letter stated that if a new funds transfer agreement was not in place by July 19, 1996, Bank One could not ensure uninterrupted wire transfer service from accounts lacking such agreements. Trustmark denies ever receiving this letter and never sent Bank One a new funds transfer agreement for Account Two.
In September 1996, the Account Two balance rose above $110,000 for the first time since the July 19, 1996 deadline. Bank One did not transfer funds from Account Two into the Harris Account. Bank One sent regular account statements to Trustmark showing the balances in Account Two, but received no further instructions from Trustmark. The Account Two balance continued to grow until December 1997, when Bank One brought the balance to the specific attention of Trustmark’s Arizona agent, who contacted Trustmark’s management. Bank One transferred $19,220,099.80 to the Harris Account, leaving $10,000 in Account Two. In early 1998, Trustmark instructed Bank One to transfer Account Two’s remaining funds to the Harris Account and thereafter closed Account Two.
Trustmark then filed this action against Bank One, alleging a claim under Article 4A of the UCC, as well as claims for unjust enrichment and negligence. Trustmark alleged that Bank One failed to complete wire transfers from Trustmark’s non-interest bearing account at Bank One (Account Two) to Trustmark’s investment account at Harris Bank (Harris Account), contrary to the Letter of Instructions. Trustmark asserted a loss of more than $500,000 in interest on its funds as a result of Bank One’s inaction, and that Bank One reaped a corresponding windfall profit through interest Bank One earned on Trustmark’s money. Trustmark did not assert a breach of contract claim. According to Bank One, the contractual documents eliminated recovery or significantly limited the amount recoverable for breach of contract. However, Article 4A--if applicable--restricts the right of a bank to limit its liability regarding funds transfers. See [UCC § 4A-305(f).]
Bank One filed motions to dismiss and for summary judgment on the UCC claim, arguing that the wire transfers at issue were not subject to Article 4A because the Letter of Instructions was not a “payment order” under Article 4A. The trial court denied Bank One’s motions, and the case proceeded to a jury trial. At the close of evidence, the court granted Bank One’s motion for judgment as a matter of law on the unjust enrichment claim, but continued to reject Bank One’s argument that Article 4A of the UCC was not applicable. The court submitted Trustmark’s UCC claim and its negligence claim to the jury.
The jury returned a verdict for Trustmark on the UCC claim and found damages of $573,197.02. * * * * The trial court entered judgment for Trustmark with damages of $573,197.02, as well as pre-judgment interest, attorneys’ fees, and taxable costs.
ISSUES ON APPEAL AND CROSS APPEAL
Bank One argues on appeal that Trustmark’s judgment should be reversed as a matter of law because Article 4A of the UCC is not applicable. According to Bank One, the Letter of Instructions was not a “payment order” under Article 4A, and the trial court should not have sent this UCC claim to the jury.
* * * *

BANK ONE’S APPEAL

Bank One challenges the trial court’s submission of the UCC claim to the jury on the basis that the Letter of Instructions is not a “payment order” under Article 4A; therefore the UCC is not applicable, and this claim should have been dismissed as a matter of law. Whether the Letter of Instructions is a “payment order” is initially a question of law that we independently review.
As a Matter of Law, the UCC Does Not Apply Because the Letter of Instructions
Was Not a “Payment Order” Under Article 4A
We begin our analysis of the applicability of Article 4A by noting its recent origin and its purpose. In 1989 the National Conference of Commissioners on Uniform State Laws and the American Law Institute promulgated Article 4A of the UCC, addressing funds transfers. Over the next several years, all fifty states and the District of Columbia enacted Article 4A as part of their existing UCC statutes. Arizona enacted Article 4A in 1991.
Technological developments in recent decades have enabled banks to transfer funds electronically, without physical delivery of paper instruments. Before Article 4A, no comprehensive body of law had defined the rights and obligations that arise from wire transfers. Article 4A was intended to provide a new and controlling body of law for those wire transfers within its scope. * * * *
Because there are very few reported decisions--and none from Arizona-- interpreting and applying the provisions of Article 4A defining its scope, we have considered primarily the language of the pertinent statutes, the purpose of Article 4A, and the comments of its drafters. In the Prefatory Note to Article 4A, the drafters discussed the funds transfers intended to be covered and several factors considered in the drafting process:
There are a number of characteristics of funds transfers covered by Article 4A that have influenced the drafting of the statute. The typical funds transfer involves a large amount of money. Multimillion dollar transactions are commonplace. The originator of the transfer and the beneficiary are typically sophisticated business or financial organizations. High speed is another predominant characteristic. Most funds transfers are completed on the same day, even in complex transactions in which there are several intermediary banks in the transmission chain. A funds transfer is a highly efficient substitute for payments made by the delivery of paper instruments. Another characteristic is extremely low cost. A transfer that involves many millions of dollars can be made for a price of a few dollars. Price does not normally vary very much or at all with the amount of the transfer. This system of pricing may not be feasible if the bank is exposed to very large liabilities in connection with the transaction.
Article 4A applies only to “funds transfers” as defined in the statute. [UCC § 4A-102.] A “funds transfer” is “the series of transactions, beginning with the originator’s payment order, made for the purpose of making payment to the beneficiary of the order.” [UCC § 4A-104(1) (emphasis added by court).] Accordingly, to fall within the scope of Article 4A, a transaction must begin with a “payment order.”
A “payment order” is defined by the UCC, in pertinent part, as:
[A]n 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.
[UCC § 4A-103(a)(1) (emphasis added by court).]
Bank One argues that the Letter of Instructions was not a payment order, because the Letter was not for a “fixed or determinable amount of money” and imposed two conditions other than time of payment: that the account balance always remain $10,000 (“balance condition”) and that transfers not occur until subsequent deposits have raised the balance to $110,000 or more (“deposit condition”). Trustmark argues that the conditions at issue were merely conditions regarding the time of payment -- that the balance and deposit conditions essentially determined when transfers were to be made. Trustmark asserts that time of payment need not be set by a specific date, but may be set by events such as the bank’s receipt of an incoming wire or deposit. However, the amounts to be transferred did not relate to incoming wires for the same amounts or even wires received on the same day of each month. Rather, Trustmark’s agent made deposits sporadically and in varying amounts. Therefore, the conditions in the Letter of Instructions required Bank One to continuously monitor Trustmark’s account balance to determine whether sufficient deposits had been made to enable the bank to make a transfer that satisfied both the deposit and balance conditions.
Neither party has cited, nor has our own research revealed, any reported decision addressing the precise issue presented: whether a letter of instructions from an account holder to its bank, requesting automatic wire transfers of funds in excess of a minimum balance whenever the total balance equals or exceeds a specified amount, constitutes a “payment order” governed by UCC Article 4A. We conclude that the Letter of Instructions was not a “payment order,” because the Letter subjected Bank One to a condition to payment other than the time of payment.
Article 4A applies to discrete, mechanical transfers of funds. Comment 3 to UCC § 4A-104 provides:
The function of banks in a funds transfer under Article 4A is comparable to their role in the collection and payment of checks in that it is essentially mechanical in nature. The low price and high speed that characterize funds transfers reflect this fact. Conditions to payment * * * other than time of payment impose responsibilities on [the] bank that go beyond those in Article 4A funds transfers.
Bank One’s obligation to make an ongoing inquiry as to Account Two’s balance status removes the Letter of Instructions from the Article 4A definition of a “payment order.” Conditions other than time of payment are anathema to Article 4A, which facilitates the low price, high speed, and mechanical nature of funds transfers. [Quotation marks, brackets, and citation omitted.] In their treatise on the UCC, James J. White and Robert S. Summers further explain:
A payment order must not “state a condition to payment of the beneficiary other than time of payment.” Few transactions will include such conditions. The exception for “time of payment” means that a payment order need not order immediate payment, though most do. For example, a payment order may specify that a certain amount of money must be paid on a certain date to a particular beneficiary.
3 James J. White & Robert S. Summers, Uniform Commercial Code § 22-2 (4th ed.1995) (citation omitted). White and Summers then quoted the same language from Comment 3 that we quote [above] to explain that “the drafters did not wish to involve banks in [inquiries] into whether other conditions have occurred.” Id.
Based on the language defining “payment order,” the purpose of Article 4A, and the drafters’ intent that payment orders be virtually unconditional, we conclude that requiring the bank to continually examine the account balance is a condition to payment other than time of payment under [UCC § 4A-103(a)(1)(i).] We perceive a qualitative difference between a condition requiring daily monitoring of the account balance and an instruction to wire funds on a specific day.
Trustmark also argues that the balance and deposit conditions were permissible conditions observed by Bank One in the past, and therefore Bank One cannot now argue that the conditions were impermissible under Article 4A. The fact that Bank One provided these services to Trustmark under the wire transfer agreement and the Letter of Instructions does not alter our analysis and is irrelevant to whether the Letter of Instructions falls within the definition of a “payment order.” Bank One does not argue that such conditions are impermissible per se; Bank One simply argues that the Letter’s conditions are beyond the permissible conditions for an Article 4A “payment order.” Although parties may appropriately and legitimately make such a long-term arrangement for transfers to and from various accounts, their agreement does not automatically transform the arrangement into an Article 4A funds transfer.
* * * *
We conclude, as a matter of law, that Trustmark does not have a claim under UCC Article 4A, because the Letter of Instructions is not an Article 4A “payment order.” Therefore, we reverse the judgment against Bank One on Trustmark’s UCC claim.