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84-4a-406. Payment by originator to beneficiary; discharge of underlying obligation. (a) Subject to subsection (e) of K.S.A. 84-4a-211 and subsections (d) and (e) of K.S.A. 84-4a-405, the originator of a funds transfer pays the beneficiary of the originator's payment order: (i) At the time a payment order for the benefit of the beneficiary is accepted by the beneficiary's bank in the funds transfer; and (ii) in an amount equal to the amount of the order accepted by the beneficiary's bank, but not more than the amount of the originator's order.

(b) If payment under subsection (a) is made to satisfy an obligation, the obligation is discharged to the same extent discharge would result from payment to the beneficiary of the same amount in money, unless: (i) The payment under subsection (a) was made by a means prohibited by the contract of the beneficiary with respect to the obligation; (ii) the beneficiary, within a reasonable time after receiving notice of receipt of the order by the beneficiary's bank, notified the originator of the beneficiary's refusal of the payment; (iii) funds with respect to the order were not withdrawn by the beneficiary or applied to a debt of the beneficiary; and (iv) the beneficiary would suffer a loss that could reasonably have been avoided if payment had been made by a means complying with the contract. If payment by the originator does not result in discharge under this section, the originator is subrogated to the rights of the beneficiary to receive payment from the beneficiary's bank under subsection (a) of K.S.A. 84-4a-404.

(c) For the purpose of determining whether discharge of an obligation occurs under subsection (b), if the beneficiary's bank accepts a payment order in an amount equal to the amount of the originator's payment order less charges of one or more receiving banks in the funds transfer, payment to the beneficiary is deemed to be in the amount of the originator's order unless upon demand by the beneficiary the originator does not pay the beneficiary the amount of the deducted charges.

(d) Rights of the originator or of the beneficiary of a funds transfer under this section may be varied only by agreement of the originator and the beneficiary.

History: L. 1990, ch. 367, § 31; L. 1991, ch. 294, § 26; July 1.

KANSAS COMMENT, 1996

This section is identical to the 1995 Official Text.

It serves a function similar to 84-3-310, which provides that payment of an instrument discharges the underlying obligation. The originator and the beneficiary can vary these rules by agreement.

Unless the payment order has been cancelled (84-4a-211(e)), or the beneficiary's bank is subject to a funds-transfer system rule which makes payments provisional until the bank receives payment (84-4a-405(d)), or the beneficiary's bank belongs to a group which shares the loss of failed settlement obligations and there is a loss (84-4a-405(e)), any of which might permit a beneficiary's bank to demand a refund of an accepted payment order, acceptance by the beneficiary's bank discharges the originator's debt to the beneficiary.

Subsection (b) provides a means for the beneficiary to reject a nonconforming form of payment if the beneficiary meets four conditions: the payment violates the agreement, the beneficiary has objected to the originator reasonably promptly, the funds have not been withdrawn by or for the benefit of the beneficiary and the beneficiary has suffered loss by reason of the method of payment which would be avoided by compliance with the contract. If payment is successfully rejected, the originator succeeds to the beneficiary's rights against the beneficiary's bank.

Subsection (c) deals with the practice of some receiving banks deducting their charges from the payment order under 84-4a-302(c). If the beneficiary objects to receiving a slightly lesser amount due to these deductions, the originator is permitted to reimburse the beneficiary for them (and the payment is in the full amount of the originator's order) terminating the obligation.


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