## Facts

- Spedley Securities Ltd. owed Banque Worms (BW) money under a revolving credit facility that BW demanded be repaid on April 10, 1989.
- Spedley instructed its bank, Security Pacific International Bank (Security Pacific), to wire $1,974,267.97 to BW’s account at BankAmerica International (BAI).
- Hours later, Spedley sent a second instruction directing Security Pacific to stop payment to BW and instead wire the same amount to National Westminster Bank USA (NatWest USA).
- Security Pacific mistakenly executed the first instruction and wired $1,974,267.97 to BW at BAI; BW was notified and the funds were credited to BW’s account.
- The same afternoon, Security Pacific also executed the second instruction and wired $1,974,267.97 to NatWest USA, resulting in Spedley’s account being debited twice and becoming overdrawn; no additional cover arrived and Spedley later entered liquidation.
- After discovering the error, Security Pacific asked BAI to return the first transfer; BAI returned the funds after receiving an indemnity from Security Pacific.
- BAI sought BW’s consent to debit BW’s account for the returned amount; BW refused, prompting litigation over whether BW was entitled to keep the mistaken payment.

## Issues

1. Whether New York law permits restitution to a mistaken wire-transfer payor from a creditor-beneficiary when the payment discharged a valid, due debt and the beneficiary lacked notice of the mistake.
2. Whether New York recognizes the Restatement “discharge-for-value” rule in the wire-transfer context, rather than a broader mistake-of-fact restitution rule.

## Decision

- The New York Court of Appeals held that New York recognizes the discharge-for-value rule for mistaken wire transfers that satisfy a due debt to an innocent creditor.
- The Court held BW could retain the $1,974,267.97 because it received the payment in discharge of a debt, without knowledge of the mistake, and without misrepresentation.
- The Court rejected applying a broad mistake-of-fact restitution rule that would generally allow recovery from the payee absent reliance-based defenses.
- Following the Court of Appeals’ answer to the certified question, the Second Circuit affirmed judgment for BW.

## Legal Principles

- A creditor-beneficiary may keep a mistaken payment when: (1) it is received in discharge of a debt, (2) the beneficiary lacks notice of the mistake and made no material misrepresentation, and (3) the payment is properly applicable to the debt.
- In wire transfers, finality of payment and commercial certainty favor protecting an innocent creditor who receives funds matching a due obligation.
- Loss from an operational mistake in executing payment instructions is allocated to the mistaken payor bank when the beneficiary is a good-faith creditor and the debt is due.

## Conclusion

New York applies the discharge-for-value rule to mistaken wire transfers that satisfy a due debt to an innocent creditor, barring restitution against the beneficiary and placing the loss on the bank that made the transfer error.


Banque Worms v. BankAmerica Int’l, 77 N.Y.2d 362, 570 N.E.2d 189 (1991)