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84-3-502. Dishonor. (a) Dishonor of a note is governed by the following rules:

(1) If the note is payable on demand, the note is dishonored if presentment is duly made to the maker and the note is not paid on the day of presentment.

(2) If the note is not payable on demand and is payable at or through a bank or the terms of the note require presentment, the note is dishonored if presentment is duly made and the note is not paid on the day it becomes payable or the day of presentment, whichever is later.

(3) If the note is not payable on demand and paragraph (2) does not apply, the note is dishonored if it is not paid on the day it becomes payable.

(b) Dishonor of an unaccepted draft other than a documentary draft is governed by the following rules:

(1) If a check is duly presented for payment to the payor bank otherwise than for immediate payment over the counter, the check is dishonored if the payor bank makes timely return of the check or sends timely notice of dishonor or nonpayment under K.S.A. 84-4-301 or 84-4-302, and amendments thereto, or becomes accountable for the amount of the check under K.S.A. 84-4-302 and amendments thereto.

(2) If a draft is payable on demand and paragraph (1) does not apply, the draft is dishonored if presentment for payment is duly made to the drawee and the draft is not paid on the day of presentment.

(3) If a draft is payable on a date stated in the draft, the draft is dishonored if (A) presentment for payment is duly made to the drawee and payment is not made on the day the draft becomes payable or the day of presentment, whichever is later, or (B) presentment for acceptance is duly made before the day the draft becomes payable and the draft is not accepted on the day of presentment.

(4) If a draft is payable on elapse of a period of time after sight or acceptance, the draft is dishonored if presentment for acceptance is duly made and the draft is not accepted on the day of presentment.

(c) Dishonor of an unaccepted documentary draft occurs according to the rules stated in subsection (b)(2), (3) and (4), except that payment or acceptance may be delayed without dishonor until no later than the close of the third business day of the drawee following the day on which payment or acceptance is required by those paragraphs.

(d) Dishonor of an accepted draft is governed by the following rules:

(1) If the draft is payable on demand, the draft is dishonored if presentment for payment is duly made to the acceptor and the draft is not paid on the day of presentment.

(2) If the draft is not payable on demand, the draft is dishonored if presentment for payment is duly made to the acceptor and payment is not made on the day it becomes payable or the day of presentment, whichever is later.

(e) In any case in which presentment is otherwise required for dishonor under this section and presentment is excused under K.S.A. 84-3-504, dishonor occurs without presentment if the instrument is not duly accepted or paid.

(f) If a draft is dishonored because timely acceptance of the draft was not made and the person entitled to demand acceptance consents to a late acceptance, from the time of acceptance the draft is treated as never having been dishonored.

History: L. 1991, ch. 296, § 59; February 1, 1992.

KANSAS COMMENT, 1996

This section is identical to the 1995 Official Text. This section is derived from the former 84-3-501 and 84-3-507(1). Historical case and statutory references can be obtained from the 1965 and 1983 bound volume 7 of the Kansas Statutes Annotated.

Dishonor is important because it ends the suspension of the underlying obligation and sets the stage for suit on all the prior parties' obligations (84-3-310) and as makers, drawers and indorsers specified in 84-3-412 through 84-3-415. In addition, it is a precondition for the obligations of the drawer (84-3-414) and the indorser (84-3-415), unless presentment or notice of dishonor is excused (84-3-504). A person presenting a draft for acceptance can excuse the delay, avoiding dishonor. Subsection (f).

Subsection (a). It is the maker's responsibility to pay notes on the day they become due. Presentment for payment is necessary before there can be dishonor of a demand note, and payment is due on the date the note is presented. A note that requires presentment, or a note that is payable at or through a bank also must be presented for payment, and if it is not paid that day it is dishonored. For all other notes (those payable on a stated date and not requiring presentment), a note is dishonored if it is not paid on the due date. Thus arranging payment is the responsibility of the maker, not the holder.

Subsection (b). Drafts must be duly presented (unless excused by 84-3-504), and due acceptance or payment refused before there can be a dishonor. A refusal to pay or accept a defective draft or to pay after a defective presentment is not a dishonor, and the defect either must be cured or suit instituted against prior parties for breach of warranty. Most checks are paid through the bank collection process, for which paragraph (1) provides that the check is dishonored if it is returned within the midnight deadline or if it is held without payment beyond that time and the drawee becomes accountable for the instrument.

For other drafts, primarily those presented for immediate payment over the counter, paragraph (2) provides that they are dishonored if they are duly presented (see 84-3-501) and they are not paid on the business day of presentment (84-3-501(b)(4)). Dated drafts are payable on the later of the date stated or the date presented under paragraph (3), and presentment for acceptance (as opposed to presentment for payment) must be made before the due date. A draft payable after sight or after acceptance is dishonored if it is duly presented and is not accepted. Paragraph 4.

The Official Comment to former 84-3-510 had a useful listing of which refusals to pay are, and which are not, dishonors. Dishonoring acts include "not sufficient funds" (NSF), "account garnished," "no account" and "payment stopped." The following reasons for not paying the instrument are not dishonors: "indorsement missing," "signature missing," "signature illegible," "forgery," "payee altered," "date altered," "post dated" and "not on us."

Revisor's Note:

Former section 84-3-502 was repealed by L. 1991, ch. 296, § 111 and the number reassigned to the current text.


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