84-3-408. Drawee not liable on unaccepted draft. A check or other draft does not of itself operate as an assignment of funds in the hands of the drawee available for its payment, and the drawee is not liable on the instrument until the drawee accepts it.
History: L. 1991, ch. 296, § 45; February 1, 1992.
KANSAS COMMENT, 1996
This section is identical to the 1995 Official Text. This section is derived from the former 84-3-409(1). Historical case and statutory references can be obtained from the 1965 and 1983 bound volume 7 of the Kansas Statutes Annotated.
The section lays down an important fundamental rule. In the normal situation, holder's of the instrument have no claim against the drawee and must pursue any claims through suits on the underlying contract, obligation of the parties to the instrument, breach of warranty or other side agreements or contracts. All this changes, of course, if the instrument is accepted or paid.
The effect of this rule is significant for third parties interested in the bank account. For example, the payee's judgment creditor may not garnish the account of the drawer, while a judgment creditor of the drawer may do so until the check is paid. See, e.g., State Bank v. Stallings, 427 P.2d 744 (Utah 1967). Similarly, the drawer's trustee in bankruptcy may claim the account as an asset of the estate if the petition in bankruptcy is filed after the check was drawn but before final payment or certification. Compare 11 U.S.C. § 546(c), under which the drawee bank is free to pay checks even after a petition in bankruptcy has been filed, but the bank must freeze the account once it obtains actual knowledge of the depositor's bankruptcy filing. As another variation on the bankruptcy theme, this section probably means that a "transfer" of funds in the account to the payee for voidable preference purposes occurs upon final payment by the drawee bank, not upon execution of the check. See In re Sportsco, Inc., 31 U.C.C. Rep. 1650 (D. Ariz. (Bankr.) 1981), 12 B.R. 34.
Most important, if a seller sells goods to a buyer and the buyer's bank dishonors the buyer's check payable to the seller in spite of sufficient funds and the absence of a stop order, the seller has no direct recourse against the buyer's bank. The best that the seller can do is to move against the buyer on the check or on the underlying obligation; the buyer can then move against his bank for wrongfully dishonoring an item that was "properly payable." See 84-4-402. In short, this section continues prior law in recognizing not one ounce of privity between the holder of a check and the drawee bank, assuming no certification and no payment.
Revisor's Note:
Former section 84-3-408 was repealed by L. 1991, ch. 296, § 111 and the number reassigned to the current text.
CASE ANNOTATIONS
1. Checks written before bankruptcy petition filed but unpaid at time of petition; funds are property of bankruptcy estate. In re Spencer, 362 B.R. 489, 491 (2006).
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