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84-4a-203. Unenforceability of certain verified payment orders. (a) If an accepted payment order is not, under subsection (a) [(1)] of K.S.A. 84-4a-202, an authorized order of a customer identified as sender, but is effective as an order of the customer pursuant to subsection (b) [(2)] of K.S.A. 84-4a-202, the following rules apply:

(1) By express written agreement, the receiving bank may limit the extent to which it is entitled to enforce or retain payment of the payment order.

(2) The receiving bank is not entitled to enforce or retain payment of the payment order if the customer proves that the order was not caused, directly or indirectly, by a person: (i) Entrusted at any time with duties to act for the customer with respect to payment orders or the security procedure; or (ii) who obtained access to transmitting facilities of the customer or who obtained, from a source controlled by the customer and without authority of the receiving bank, information facilitating breach of the security procedure, regardless of how the information was obtained or whether the customer was at fault. Information includes any access device, computer software, or the like.

(b) This section applies to amendments of payment orders to the same extent it applies to payment orders.

History: L. 1990, ch. 367, § 11; L. 1991, ch. 294, § 6; July 1.


This section is identical to the 1995 Official Text.

In summary, this section provides that if the customer and the bank agreed to a security procedure, and if it was commercially reasonable, and if the bank followed the security procedure, the customer is liable for the payment order, even if it was fraudulent, unless the customer can prove access to the security procedure was not connected to the customer, its employees or agents in any way. The bank can accept a greater responsibility under paragraph 84-4a-203(a)(1).

This section may not be modified by parties except as provided in this section. See 84-4a-203(6).

The receiving bank may limit the extent to which it is to enforce payment orders that are effective but not authorized. The parties may negotiate for additional duties on the bank if the customer is in a particularly strong bargaining position. Other special circumstances may create a situation where the receiving bank has a better ability to discover an unauthorized instruction, for example, where there is a very restricted class of beneficiaries and the customer is willing to reimburse the bank for the extra time involved in confirming the instructions. These matters could also be covered by the security procedure.

Pursuant to paragraph (2) the receiving bank is entitled to enforce or retain payment of an unauthorized, but effective, payment order (84-4a-202(2)). The customer is liable for effective payment orders unless the customer proves the order was not caused by a person entrusted by the customer, or by a person who obtained the information regarding the security procedure from a source controlled by the customer, regardless of whether the customer was at fault. This is the analog of 84-3-405, but because the burden of proof is on the customer, there is a presumption that the customer, an employee or an agent is the source of the unauthorized instruction. Unlike 84-3-405, this section has no provision for comparative negligence. This is a presumption the customer seems unlikely to be able to rebut.

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