Printable Format84-4a-207. Misdescription of beneficiary. (a) Subject to subsection (b), if, in a payment order received by the beneficiary's bank, the name, bank account number, or other identification of the beneficiary refers to a nonexistent or unidentifiable person or account, no person has rights as a beneficiary of the order and acceptance of the order cannot occur.
(b) If a payment order received by the beneficiary's bank identifies the beneficiary both by name and by an identifying or bank account number and the name and number identify different persons, the following rules apply:
(1) Except as otherwise provided in subsection (c), if the beneficiary's bank does not know that the name and number refer to different persons it may rely on the number as the proper identification of the beneficiary of the order. The beneficiary's bank need not determine whether the name and number refer to the same person.
(2) If the beneficiary's bank pays the person identified by name or knows that the name and number identify different persons, no person has rights as beneficiary except the person paid by the beneficiary's bank if that person was entitled to receive payment from the originator of the funds transfer. If no person has rights as beneficiary, acceptance of the order cannot occur.
(c) If (i) a payment order described in subsection (b) is accepted, (ii) the originator's payment order described the beneficiary inconsistently by name and number, and (iii) the beneficiary's bank pays the person identified by number as permitted by subsection (b)(1), the following rules apply:
(1) If the originator is a bank, the originator is obliged to pay its order.
(2) If the originator is not a bank and proves that the person identified by number was not entitled to receive payment from the originator, the originator is not obliged to pay its order unless the originator's bank proves that the originator, before acceptance of the originator's order, had notice that payment of a payment order issued by the originator might be made by the beneficiary's bank on the basis of an identifying or bank account number even if it identifies a person different from the named beneficiary. Proof of notice may be made by any admissible evidence. The originator's bank satisfies the burden of proof if it proves that the originator, before the payment order was accepted, signed a writing stating the information to which the notice relates.
(d) In a case governed by subsection (b)(1), if the beneficiary's bank rightfully pays the person identified by number and that person was not entitled to receive payment from the originator, the amount paid may be recovered from that person to the extent allowed by the law governing mistake and restitution as follows:
(1) If the originator is obliged to pay its payment order as stated in subsection (c), the originator has the right to recover.
(2) If the originator is not obliged to pay its payment order, the originator's bank has the right to recover.
History: L. 1990, ch. 367, § 15; L. 1991, ch. 294, § 10; July 1.
KANSAS COMMENT, 1996
This section is identical to the 1995 Official Text.
It recognizes and validates the beneficiary's bank's reliance on the number given in a payment order. This will place the burden of making sure the beneficiary's name and number is correct on the sender.
Subsection (a) provides that if the payment order is to a nonexistent person or account, the beneficiary bank cannot accept the order. Under 84-4a-402 a sender is not obligated to pay until the payment order is accepted by the beneficiary's bank.
Subsection (b) deals with a payment order which identifies a beneficiary by a name, but which has the number or identification of a different beneficiary. Paragraph (1) provides that the beneficiary's bank may rely on the number and has no obligation to double check the name as long as it does not know that the name and number refer to two different persons.
Paragraph 84-4a-207(b)(2) permits the beneficiary's bank to pay the person named, and if that is the person entitled to the payment, the beneficiary has rights as a beneficiary and the payment order has been accepted. The sender will be obligated to pay under 84-4a-402. If the beneficiary's bank notices the discrepancy between the identity of the person named and the person identified by number, the bank has two options. It can reject paying anyone, in which case no one has rights as a beneficiary, and the instrument cannot be accepted. In that case the sender is not obligated to pay under 84-4a-402. If the beneficiary's bank chooses to pay one of the persons, and that is the person entitled to receive payment, that person has rights as a beneficiary, and the instrument is accepted. If the beneficiary's bank chooses the wrong person to pay, no person has rights as the beneficiary, and the instrument has not been accepted. The beneficiary's bank takes the risk of recovering from the wrongdoer.
The safest course for the beneficiary bank is to rely on the identification number and make payment if it knows there is a discrepancy. The section places a great impetus on the originator to make sure the names and numbers correspond.
Paragraph 84-4a-207(c)(1) makes the originating bank liable if the beneficiary's bank pays based on the number and without knowledge of the discrepancy. The rationale is that the originating bank should recognize the danger and guard against it. If the originator is not a bank and the payment is make to the wrong person, the originator is liable only if it received notice that the payment order could be paid based on the identification number. A signed notice is proof of the notice.
Subsection (d) gives the party liable the right to recover under the rules providing for restitution. 84-4a-303 provides a similar rule for errors by a receiving bank.