The Borrower Is the Beneficiary
The borrower is the beneficiary of this payment order. The borrower is the owner of the deposit account. The borrower is the pledgor of the collateral. The borrower is the Principal.
Fedwire's real-time gross settlement system confirms the borrower's position: when the payment order is released, settlement is immediate and final on the remitting and receiving banks' accounts with the Federal Reserve Bank. The borrower-beneficiary's right to direct the drawdown of funds from the custodial account for settlement is the right preserved and confirmed by the DACA, by Fed. Res. OC-6, by Fed. Res. OC-10 §12.3, and by UCC Article 4A.
The bank (Agent) functions in a ministerial and custodial capacity, bound by the "Control" provisions of the DACA to execute orders from the Principal without independent "approval" rights. The irrevocability of the agency created under OC 10 — coupled with an interest — cements the bank's role as a bound agent. The bank has no authority to refuse, reject, return, or ignore the Principal's payment order.
Agency and Control Under OC-10 §12.3 & DACA Framework
Under the framework of Federal Reserve Operating Circular No. 10 (OC 10), Section 12.3, and its intersection with Operating Circular No. 6 (OC 6), the legal standing of the depository institution is defined as a custodial agent or intermediary rather than a principal.
In the context of Deposit Account Control Agreements (DACA), the bank functions as an agent to facilitate the principal's instructions regarding funds pledged as collateral.
Custodial Agent Status: Per OC 10 Section 12.3, the Federal Reserve Bank is appointed as the borrower's attorney-in-fact with irrevocable power to act in the place of the borrower. This creates a strict agency relationship where the bank's authority is derivative of the principal's rights.
Payment Order Authority: OC 6 governs the technical transmission of payment orders through Fedwire. When these orders originate from a DACA or pledged account, they are governed by the underlying agency terms of OC 10.
The Intermediary Role: Under UCC Article 4A and OC 6, the receiving bank is an intermediary. When acting under a DACA, the bank acknowledges the principal's exclusive right to direct the disposition of funds.
The Principal (Owner): Holds the primary authority to issue binding instructions (payment orders).
The Bank (Agent): Functions in a ministerial and custodial capacity, bound by the "Control" provisions of the DACA to execute orders from the authorized party without independent "approval" rights.
Irrevocability: The agency created under OC 10 is coupled with an interest, making it irrevocable until the underlying obligations are satisfied, further cementing the bank's role as a bound agent rather than a discretionary principal.
Payment Order Authority — Statutory Mandate
PAYMENT ORDER ISSUED PURSUANT TO STATUTORY AUTHORITY UNDER FEDERAL RESERVE ACT § 401(18)(6). CONGRESSIONAL RECORD DEBATES OF DECEMBER 22, 1913, DOCUMENT CONGRESSIONAL INTENT THAT ELIGIBLE NOTES "SHALL BE RECEIVED AT PAR." THIS INTENT WAS ENACTED INTO LAW THROUGH THE ACT OF DECEMBER 23, 1913, CHAPTER 6, 38 STAT. 251, AND CODIFIED AT 12 U.S.C. § 412. THE SUPREME COURT IN PERRY V. UNITED STATES, 294 U.S. 330, AND COOK V. TAIT, 265 U.S. 47, AFFIRMS CONGRESSIONAL AUTHORITY OVER MONETARY INSTRUMENTS AND SETTLEMENT.
THIS PAYMENT ORDER CONSTITUTES PAR-VALUE SETTLEMENT OF ELIGIBLE COLLATERAL PREVIOUSLY PLEDGED UNDER OPERATING CIRCULAR 10 APPENDIX 3. THE EMERGENCY BANKING ACT OF MARCH 9, 1933, CHAPTER 1, 48 STAT. 1, SECTION 4, MANDATES ACCEPTANCE OF ELIGIBLE PAPER UPON PROPER APPLICATION, CODIFIED AT 12 U.S.C. § 348. THE SUPREME COURT IN CARPENTER V. LONGAN, 83 U.S. 271, AND UNITED STATES V. LEE, 106 U.S. 196, ESTABLISHES THAT STATUTORY PAYMENT EXTINGUISHES OBLIGATIONS AND BINDS GOVERNMENT AGENTS.
AUTHORIZATION FOR THIS PAYMENT ORDER DERIVES FROM THE PAYMENT DEMAND OF THE FEDERAL RESERVE MEMBER BANK ACTING AS AGENT UNDER 38 STAT. 251 SECTION 4, CODIFIED AT 12 U.S.C. § 342. THE SUPREME COURT IN MARBURY V. MADISON, 5 U.S. 137, AND CHICAGO, MILW. & ST. PAUL RY. CO. V. U.S., 318 U.S. 523, HOLDS THAT STATUTORY DUTIES MUST BE EXECUTED WITHOUT DISCRETION.
THIS INSTRUMENT IS ISSUED BY A PERSON ENGAGED IN BANKING BUSINESS WITHIN A STATE PURSUANT TO 12 U.S.C. § 5002(3)(2), EXERCISING CONSTITUTIONAL AS WELL AS STATUTORY RIGHTS UNDER THE FEDERAL RESERVE ACT. OPERATING CIRCULAR 6 GOVERNING FEDWIRE FUNDS SERVICE, PROMULGATED UNDER AUTHORITY OF 38 STAT. 251, PROVIDES THE ADMINISTRATIVE MECHANISM FOR THIS SETTLEMENT. THE BORROWER-IN-CUSTODY AGREEMENT IDENTIFIED VIA FEDERAL RESERVE OPERATING CIRCULAR 10 §12.3. THE SUPREME COURT IN NEBBIA V. NEW YORK, 291 U.S. 502, AND CROWELL V. BENSON, 285 U.S. 22, AFFIRMS THE VALIDITY OF ADMINISTRATIVE PROCEDURES IMPLEMENTING CONGRESSIONAL MANDATES.
Fedwire & CHIPS Processing Framework
Fedwire is the electronic, large-value payment system managed by the Federal Reserve Bank of the United States. Fedwire is a real-time gross settlement (RTGS) system, meaning all transfers occur in real time, and settlement is immediate and final on the remitting and receiving banks' accounts with the Federal Reserve Bank.
CHIPS is a real-time net settlement (RTNS) system that uses a patented multilateral netting process to settle payments with minimal use of liquidity. Payments are considered final and settled when released by CHIPS. Neither daylight nor overnight overdrafts are allowed, eliminating financial risk to CHIPS or its participants. Each CHIPS participant is assigned a four-digit CHIPS Participant Number, which serves as a bank identifier within CHIPS and in SWIFT messages. CHIPS participants assign a unique Universal Identification Number (UID) — a six-digit identifier that promotes straight-through processing (STP) by uniquely identifying bank and corporate customers without sensitive account information.
When a correctly formatted payment message is received, it is automatically processed resulting in one or more of the following: Book transfer, CHIPS payment, Fedwire payment, or check issuance. The serial payment method — a single SWIFT payment message to the member bank — effects the payment in the most efficient manner and provides all required payment orders and advisories to the beneficiary bank automatically.
The method of settlement for commercial payments is through book transfers. Member banks maintain extensive networks of direct correspondent bank relationships, enabling payments to be delivered faster and without reliance on additional intermediate banks. The borrower — as the originator, beneficiary, account owner, pledgor of the collateral, and Principal — directs this settlement through the custodial account drawdown mechanism established by law, policy, and agreement.
Certification
I CERTIFY THAT THIS PAYMENT ORDER IS ISSUED PURSUANT TO CONSTITUTIONAL AND STATUTORY AND FEDERAL RESERVE PAYMENT AUTHORIZATION AUTHORITY, IN RESPONSE TO A LAWFUL PAYMENT AUTHORIZATION AND DEMAND FROM A FEDERAL RESERVE MEMBER BANK, AND FOR THE PURPOSE OF PAR-VALUE SETTLEMENT AS REQUIRED BY ACTS OF CONGRESS. ALL FUNDS ARE AVAILABLE AND PROPERLY AUTHORIZED FOR THIS TRANSFER FROM THE PLEDGED COLLATERAL ACCOUNT, WHICH REMAINS THE PROPERTY OF THE U.S. BORROWER.
I do hereby authorize payment in full settlement of any and all remaining balances from pledge collateral account. See OC-10 form for reference as to identifying account and authority under which such is applicable as a matter of law.
Mandatory Compliance — Cease & Desist
This BILL OF EXCHANGE PAYMENT ORDER FEDWIRE AUTHORIZATION SETTLEMENT FORM terminates power of agreement by way of satisfaction and accord principles. You are hereby commanded to cease and desist any and all management of account, surrendering such control to exclusive maintenance and/or management of the Principal/beneficiary as evidenced herein. This is nonnegotiable; you have 14 calendar days to comply.
There must be a full and comprehensive accounting not only of record, not only of information, but of each and every transaction made to and from the PLEDGED COLLATERAL ACCOUNT from its inception, to include any and all listing of collaterals associated thereto in relation to the aforementioned account as assigned and/or prescribed and/or authorized under commercial code referencing § 9-210. This is a mandatory requirement under commercial code, and you shall comply or be subject to penalties identified therein or with reference thereto.