Printable Format84-3-602. Payment. (a) Subject to subsection (b), an instrument is paid to the extent payment is made (1) by or on behalf of a party obliged to pay the instrument, and (2) to a person entitled to enforce the instrument. To the extent of the payment, the obligation of the party obliged to pay the instrument is discharged even though payment is made with knowledge of a claim to the instrument under K.S.A. 84-3-306 by another person.
(b) The obligation of a party to pay the instrument is not discharged under subsection (a) if:
(1) A claim to the instrument under K.S.A. 84-3-306 is enforceable against the party receiving payment and (A) payment is made with knowledge by the payor that payment is prohibited by injunction or similar process of a court of competent jurisdiction, or (B) in the case of an instrument other than a cashier's check, teller's check or certified check, the party making payment accepted, from the person having a claim to the instrument, indemnity against loss resulting from refusal to pay the person entitled to enforce the instrument; or
(2) the person making payment knows that the instrument is a stolen instrument and pays a person it knows is in wrongful possession of the instrument.
History: L. 1991, ch. 296, § 64; February 1, 1992.
KANSAS COMMENT, 1996
This section is identical to the 1995 Official Text except the lower case roman numerals have been replaced by arabic numbers in subsection (a) and by capital letters in subsection (b)(1). This section is derived from the former 84-3-603. Historical case and statutory references can be obtained from the 1965 and 1983 bound volume 7 of the Kansas Statutes Annotated.
Subsection (a). Normally, when a person entitled to enforce an instrument (defined in 84-3-301, but most commonly the holder) receives payment from or on behalf of a prior party, usually the maker, drawer or indorser, the payor is discharged to the extent of the payment, even though the instrument is claimed by another. This section complements 84-3-305(c), which prohibits an obligor from asserting the claims of others. Discharge on the instrument is also discharge on the underlying obligation. 84-3-310(a). Thus the drawer can pay a holder of a bearer check which was lost or stolen and be discharged on the instrument and the underlying obligation, and the loser of the check is left with a claim against the finder or thief.
Subsection (b). There is no discharge for the payor under paragraph (1)(A) if the the claim to the instrument (normally by the owner of bearer paper that has been lost or stolen) is enforceable against the holder and payment has been enjoined. Thus the drawee cannot pay a mere holder if the owner of the instrument has gotten an injunction. If the holder is a holder in due course, however, there will be a discharge.
Nor is there a discharge under paragraph (1)(B) if the owner of the instrument can enforce the claim against the holder and the payor has been indemnified against any loss for not paying the instrument by the owner. (This subparagraph does not apply to instruments on which the bank is the obligor, such as certified checks. See 84-3-411.) Under this paragraph, if the owner of a lost or stolen instrument has indemnified the drawer against loss, and the drawer has successfully stopped payment on the check, the drawer will not be discharged if it pays a mere holder after dishonor, but will be discharged if it pays a holder in due course. The claim to the instrument is not valid against a holder in due course who is the holder of the instrument.
Finally, payment is not a discharge under paragraph (2) if the payor knows the instrument was stolen and payment is made to a person who is a mere holder and who the payor knows is in wrongful possession of the instrument. Presumably this means that there is no discharge for payment to the thief or to a mere holder through a thief, even after a theft of bearer paper. By this reading, the only person who can be in proper possession of an instrument is a holder in due course.
Revisor's Note:
Former section 84-3-602 was repealed by L. 1991, ch. 296, § 111 and the number reassigned to the current text.