Credit Lyonnais New York Branch v. Koval, 97-CT-00589-SCT.

• Decision Date: 05 August 1999
• Docket Number: No. 97-CT-00589-SCT.,97-CT-00589-SCT.
• Citation: 745 So.2d 837
• Parties: CREDIT LYONNAIS NEW YORK BRANCH v. Alfred Randolph KOVAL.
• Court: Mississippi Supreme Court

745 So.2d 837

CREDIT LYONNAIS NEW YORK BRANCH v. Alfred Randolph KOVAL.

No. 97-CT-00589-SCT.

Supreme Court of Mississippi.

August 5, 1999.

Rehearing Denied September 23, 1999.

Michael Louis Fondren, Pascagoula, Attorney for Appellant.

Floyd J. Logan, Gulfport, Attorney for Appellee.

EN BANC.

ON WRIT OF CERTIORARI

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, 77 N.Y.2d 362, 568 N.Y.S.2d 541, 570 N.E.2d 189 (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, 77 N.Y.2d 362, 568 N.Y.S.2d 541, 570 N.E.2d 189 (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 ...