Trustmark Insurance v. Bank One, Arizona, NA
48 P.3d 485, 202 Ariz. 535 (2002)
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Rule of Law:
An instruction to a bank to transfer funds that is conditional upon the occurrence of a specified account balance is not a "payment order" under Article 4A of the Uniform Commercial Code, because it imposes a condition to payment other than the time of payment.
Facts:
- In May 1995, Trustmark Insurance Company ('Trustmark') sent a 'Letter of Instructions' to Bank One, Arizona, NA ('Bank One') regarding a deposit account.
- The letter instructed Bank One to maintain a daily balance of $10,000 in the account.
- The letter also instructed Bank One to automatically wire transfer funds to a Trustmark account at Harris Bank whenever the account balance reached $110,000 or more.
- Bank One followed these instructions for over a year, making transfers when the balance condition was met.
- In August 1996, Bank One automated its wire transfer system and notified customers that a new funds transfer agreement was required for uninterrupted service; Trustmark denies receiving this notice and did not provide a new agreement.
- In September 1996, after the deadline for the new agreement had passed, the account balance rose above $110,000, but Bank One stopped making the automatic transfers.
- Bank One did not make any transfers for over a year, during which the account balance grew to over $19 million.
- In December 1997, after Bank One notified Trustmark's agent of the high balance, the funds were transferred at Trustmark's direction.
Procedural Posture:
- Trustmark filed an action against Bank One in an Arizona trial court, alleging claims under UCC Article 4A, unjust enrichment, and negligence.
- The trial court denied Bank One's motions to dismiss and for summary judgment, in which Bank One argued that Article 4A did not apply.
- At the close of a jury trial, the trial court granted Bank One's motion for judgment as a matter of law (JMOL) on Trustmark's unjust enrichment claim.
- The jury returned a verdict in favor of Trustmark on the UCC claim for $573,197.02.
- On the negligence claim, the jury found for Trustmark but awarded $0 in damages and found the parties each 50% at fault.
- The trial court entered judgment for Trustmark on the UCC verdict, including interest, fees, and costs.
- Bank One (appellant) appealed the judgment on the UCC claim to the Court of Appeals of Arizona. Trustmark (appellee) cross-appealed the JMOL on its unjust enrichment claim and the verdict on its negligence claim.
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Issue:
Does a letter instructing a bank to automatically transfer funds whenever an account balance reaches a certain threshold, while also maintaining a minimum balance, constitute a 'payment order' under Article 4A of the Uniform Commercial Code?
Opinions:
Majority - Gemmill, Judge
No. A letter of instructions that requires a bank to continuously monitor an account balance and make transfers only when that balance reaches a certain amount is not a 'payment order' under UCC Article 4A. The court reasoned that Article 4A applies only to 'funds transfers' which must begin with a 'payment order.' Under A.R.S. § 47-4A103(A)(1), a payment order is an instruction to pay a fixed or determinable amount of money that 'does not state a condition to payment to the beneficiary other than time of payment.' Trustmark's instructions required Bank One to continuously monitor the account to see if the balance reached $110,000, which is a condition other than the time of payment. The drafters of Article 4A intended it to cover discrete, high-speed, low-cost, mechanical transfers, not arrangements that impose ongoing monitoring responsibilities on the bank. Such conditions are, in the court's view, 'anathema' to the purpose of Article 4A. Therefore, the dispute is not governed by Article 4A, but by general contract principles.
Analysis:
This decision significantly narrows the scope of UCC Article 4A by clarifying the definition of a 'payment order.' It establishes that standing instructions for conditional, balance-based transfers fall outside the purview of Article 4A. As a result, disputes arising from such 'sweep' account arrangements must be resolved under general contract law, where banks may have greater ability to limit their liability than is permitted under Article 4A. This ruling reinforces the principle that Article 4A is designed for discrete, unconditional payment instructions, not for managing ongoing, conditional banking relationships.
