Printable Format84-3-418. Payment or acceptance by mistake. (a) Except as provided in subsection (c), if the drawee of a draft pays or accepts the draft and the drawee acted on the mistaken belief that (1) payment of the draft had not been stopped pursuant to K.S.A. 84-4-403 or (2) the signature of the drawer of the draft was authorized, the drawee may recover the amount of the draft from the person to whom or for whose benefit payment was made or, in the case of acceptance, may revoke the acceptance. Rights of the drawee under this subsection are not affected by failure of the drawee to exercise ordinary care in paying or accepting the draft.
(b) Except as provided in subsection (c), if an instrument has been paid or accepted by mistake and the case is not covered by subsection (a), the person paying or accepting may, to the extent permitted by the law governing mistake and restitution, (1) recover the payment from the person to whom or for whose benefit payment was made or (2) in the case of acceptance, may revoke the acceptance.
(c) The remedies provided by subsection (a) or (b) may not be asserted against a person who took the instrument in good faith and for value or who in good faith changed position in reliance on the payment or acceptance. This subsection does not limit remedies provided by K.S.A. 84-3-417 or K.S.A. 84-4-407 and amendments thereto.
(d) Notwithstanding K.S.A. 84-4-215 and amendments thereto, if an instrument is paid or accepted by mistake and the payor or acceptor recovers payment or revokes acceptance under subsection (a) or (b), the instrument is deemed not to have been paid or accepted and is treated as dishonored, and the person from whom payment is recovered has rights as a person entitled to enforce the dishonored instrument.
History: L. 1991, ch. 296, § 55; February 1, 1992.
KANSAS COMMENT, 1996
This section is identical to the 1995 Official Text except that the lower case roman numerals have been replaced by arabic numbers. This section is derived from the former 84-3-418 with major modifications. Historical case and statutory references can be obtained from the 1965 and 1983 bound volume 7 of the Kansas Statutes Annotated.
Subsection (c). This subsection contains the general rule that payment is final as against a person who took the instrument in good faith for value, or a person who in good faith changed position in reliance on the payment. This section deals with payment of the instrument. It has no effect with other causes of action such as breach of warranty or the contracts between the parties. If a check or a note bears a forged indorsement, final payment can be reversed and the drawee or maker can proceed upstream against prior parties for breach of warranty. See 84-3-417 and 84-4-208. The section generally forbids the payor from reversing payment, but subsections (a) and (b) provide exceptions to the rule.
Subsections (a) and (b). These two subsections state the exceptions to the general rule that payment is final, and mark a major departure from and overturning of the vast majority of prior decisions. Under subsection (a), if the drawee pays or accepts the instrument by mistake over a stop payment order or despite an unauthorized drawer's signature, the payment can be recovered except as to the innocent parties described in subsection (c). This will prevent a windfall to mere holders (either because of notice of a defect or defense, or because they have not given value) and others who have not relied on the payment.
Subsection (b) permits any other mistaken payment to be recovered in any case where the law of restitution would permit. This will be possible in situations where the court can set the transaction aside under the common law, such as mistake, unjust enrichment, fraud and breach of a fiduciary relationship.
If payment is set aside, the instrument is considered dishonored, and the parties can be sued on their obligations as makers, drawers and indorsers.
Revisor's Note:
Former section 84-3-418 was repealed by L. 1991, ch. 296, § 111 and the number reassigned to the current text.