Grain Traders, Inc. v. Citibank, N.A.

On December 22, 1994, Grain Traders, Inc. (plaintiff) initiated a funds transfer to pay Claudio Kraemer $310,000 through a series of payment orders, as instructed by Grain Traders. Grain Traders first issued a payment order to its bank, Banco de Credito Nacional (BCN), to debit Grain Traders’ account at BCN by $310,000. BCN then issued a payment order to Citibank, N.A. (defendant) to debit BCN’s account at Citibank by $310,000 and to credit that amount to the Citibank account of Banque du Credit et Investissement Ltd. (BCIL). Citibank then issued a payment order to BCIL to transfer $310,000 to Banco Extrader, S.A. (Extrader), which was then to credit $310,000 to Kraemer’s account at Extrader. Shortly after the payment orders were issued but before the funds transfer to Kraemer was completed, BCIL and Extrader suspended payments, BCIL began closing its offices, and Extrader became insolvent. On December 28, 1994, at Grain Traders’ request, BCN asked Citibank to cancel BCN’s payment order and return the $310,000 that Citibank debited from BCN’s Citibank account and credited to BCIL. Citibank refused, saying it could not debit BCIL’s account because BCIL had exceeded its credit limit with Citibank. Grain Traders sued Citibank to compel a refund of the $310,000 pursuant to § 4-A-402(4) of the New York Uniform Commercial Code (UCC). The district court granted Citibank’s motion for summary judgment, holding that Grain Traders, as a sender under UCC Article 4-A, could only bring a refund claim pursuant to § 4-A-402(4) against the receiving bank to which Grain Traders issued its payment order, i.e., BCN. Grain Traders appealed.