Printable Format84-4-401. When bank may charge customer's account. (a) A bank may charge against the account of a customer an item that is properly payable from that account even though the charge creates an overdraft. An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and bank.
(b) A customer is not liable for the amount of an overdraft if the customer neither signed the item nor benefited from the proceeds of the item.
(c) A bank may charge against the account of a customer a check that is otherwise properly payable from the account, even though payment was made before the date of the check, unless the customer has given notice to the bank of the postdating describing the check with reasonable certainty. The notice is effective for the period stated in K.S.A. 84-4-403(b) and amendments thereto for stop-payment orders, and must be received at such time and in such manner as to afford the bank a reasonable opportunity to act on it before the bank takes any action with respect to the check described in K.S.A. 84-4-303 and amendments thereto. If a bank charges against the account of a customer a check before the date stated in the notice of postdating, the bank is liable for damages for the loss resulting from its act. The loss may include damages for dishonor of subsequent items under K.S.A. 84-4-402 and amendments thereto.
(d) A bank that in good faith makes payment to a holder may charge the indicated account of its customer according to:
(1) The original terms of the altered item; or
(2) the terms of the completed item, even though the bank knows the item has been completed unless the bank has notice that the completion was improper.
History: L. 1965, ch. 564, § 227; L. 1975, ch. 515, § 1; L. 1991, ch. 296, § 101; L. 1994, ch. 99, § 1; July 1.
KANSAS COMMENT, 1996
This section is identical to the 1995 Official Text. The section is derived from the former 84-4-401 with new provisions in the last sentence of subsection (a), and new subsections (b) and (c). The other amendments to subsections (a) and (d) are stylistic and are not meant to change the substantive law.
Subsection (a) states the general rule arising from the depositor-bank contract: The bank is authorized to debit the account for any items which are "otherwise properly payable." Subsection (a) is notable for the "negative pregnant" it contains, a bank may not charge its customer's account for items which are not properly payable. Examples of items that are not "properly payable," and the debit of the customer's account is not unauthorized, include forged drawer's signatures, forged indorsements, material alterations and payments over timely stop orders or post-dated check notices. The new last sentence has been added to clarify which items are not properly payable, namely any of those items in the example above. Pre-UCC Kansas decisional law is in accord. Barber v. Emery, 101 K. 314, 167 P. 1044 (1917).
Subsection (b) is new and is a clarifying amendment. It ratifies those decisions which have held that the nonsigning customer on a joint account is not liable for an overdraft signed by the other joint tenant if the nonsigning joint tenant did not receive any benefit. It will probably have its greatest impact in failed or failing businesses and marriages. It is probable that banks will soon attempt to override its operation by separate bank-depositor agreements making each customer liable for all properly payable items on the account. See 84-4-103(a).
Subsection (c) is similar to a non-uniform provision added by the Kansas legislature in 1975, but is new to the Official Text. It is intended to give drawee banks protection against postdated checks. The drawer of a post-dated check must give written notice to the bank that such a check is on the way. Otherwise, the check is "properly payable." Notice which "reasonably identifies" the check will depend on the system the bank uses to identify items, and could include any of the computer encoded information the bank's computers recognize, such as the check number, the account number, and the amount. This subsection is necessitated by the computerization which has reduced manual examination to those incoming checks which create an overdraft or are very large. It is a small burden to put on the customer because post-dated checks are rare.
Subsection (d) has only stylistic amendments. It draws a sharp distinction between materially altered items and incomplete items completed contrary to authorization of the drawer. If a check is raised by the payee from $58.20 to $6658.20, and the drawee bank, without notice of the foul play, debits the account of the drawer for the full amount, the item is not "properly payable" with respect to the $6600 alteration. The bank must recredit its customer's account $6600, assuming no negligence on the part of the drawer. The bank will then have a breach of a presentment warranty action against prior parties. By comparison, if the drawer signs a check with the amount blank, expecting the payee to fill it in with a figure much less than the figure actually inserted by the payee, the bank may debit its customer's account for the amount of the completed item. For the definitions of "incomplete instrument," see 84-3-115, for "material alteration," see 84-3-407.
CASE ANNOTATIONS
1. Declaratory judgment action (K.S.A. 60-1701) held improper avenue on burden of proof issues in dispute over unauthorized drawer's signature (K.S.A. 84-3-406). Wichita Computer & Supply, Inc. v. Mulvane State Bank, 15 Kan. App. 2d 258, 259, 805 P.2d 1255 (1991).