KANSAS OFFICE of
  REVISOR of STATUTES

  

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84-4-303. When items subject to notice, stop-payment order, legal process or setoff; order in which items may be charged or certified. (a) Any knowledge, notice, or stop-payment order received by, legal process served upon, or setoff exercised by a payor bank comes too late to terminate, suspend, or modify the bank's right or duty to pay an item or to charge its customer's account for the item if the knowledge, notice, stop-payment order or legal process is received or served and a reasonable time for the bank to act thereon expires or the setoff is exercised after the earliest of the following:

(1) The bank accepts or certifies the item;

(2) the bank pays the item in cash;

(3) the bank settles for the item without having a right to revoke the settlement under statute, clearinghouse rule, or agreement;

(4) the bank becomes accountable for the amount of the item under K.S.A. 84-4-302 and amendments thereto dealing with the payor bank's responsibility for late return of items; or

(5) with respect to checks, a cutoff hour no earlier than one hour after the opening of the next banking day after the banking day on which the bank received the check and no later than the close of that next banking day or, if no cutoff hour is fixed, the close of the next banking day after the banking day on which the bank received the check.

(b) Subject to subsection (a), items may be accepted, paid, certified or charged to the indicated account of its customer in any order.

History: L. 1965, ch. 564, § 226; L. 1991, ch. 296, § 100; February 1, 1992.

KANSAS COMMENT, 1996

This section is identical to the 1995 Official Text. The section is derived from, and is very similar to the former 84-4-303, with several substantive amendments. The language in subsection (a) has been clarified. In addition, the reference to the process of posting in former paragraph (1)(d) has been deleted and replaced with a new paragraph (a)(5) with a deadline the day following the day of receipt based on the passage of time. The other amendments are stylistic and are not meant to change the substantive law.

This section determines who has priority between the "four legals" asserting a claim to the proceeds of an item and a payor bank's taking action on the item in favor of another claim to remove the proceeds from the customer's account on an incoming item. The basic transaction can be set up as follows: (a) An item is received by the payor bank; (b) The bank is going to take one of the actions on the item detailed in paragraphs 84-4-303(a)(1) through (a)(5); and (c) Someone wants the bank to take another action regarding the item or the account (the "four legals" at the beginning of subsection 84-4-303(a)). The issue is whether the bank had a reasonable time to act on the "four legals" described in (c) before it has otherwise committed itself to the actions in (b).

Under subsection (a)(1)—(5), if the bank has either (1) accepted or certified the check, (2) paid for it in cash over the counter, (3) settled for the item without a right to revoke, (4) become accountable for the item pursuant to 84-4-302, such as letting the midnight deadline pass, or (5) for checks, let the time pass under its internal guidelines for returning the check, whichever is earliest, before it has received and had a reasonable time to act on the "legal," the bank's action has priority. Conversely, if the "legal" arrives at the bank within a reasonable time before the bank has made any final decision regarding that account, the "legal" has priority and wins. For example, if a garnishment notice arrives at the bank at 10:05 a.m., and a $1500 check (which would clean out the account) presented on the previous day is not finally signature-checked until 11:15 a.m., the "legal" would probably prevail, since the bank had a reasonable time to communicate it and act upon it before the process of posting the check was complete. Pre-UCC Kansas decisional law was in accord with the basic policy of this subsection. Farmers Bank v. Stapleton, 118 K. 755, 236 P. 828 (1925); McAdoo v. Farmers State Bank, 106 K. 662, 189 P. 155 (1920); Moravek v. First National Bank, 119 K. 84, 237 P. 921 (1925).

Subsection (b) allows the drawee bank to pay incoming items in any order. Thus, if the account contains only $1200 and two checks arrive on the same day through the clearings, one for $900 and the other for $700, the bank need not contact the customer to determine which check should be dishonored in order to mitigate the customer's loss. It may pay either and, if it so chooses, dishonor the other.


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