Printable Format84-4-403. Customer's right to stop payment; burden of proof of loss. (a) A customer or any person authorized to draw on the account if there is more than one person may stop payment of any item drawn on the customer's account or close the account by an order to the bank describing the item or account with reasonable certainty received at a time and in a manner that affords the bank a reasonable opportunity to act on it prior to any action by the bank with respect to the item described in K.S.A. 84-4-303 and amendments thereto. If the signature of more than one person is required to draw on an account, any of these persons may stop payment or close the account.
(b) A stop-payment order is effective for six months, but it lapses after 14 calendar days if the original order was oral and was not confirmed in writing within that period. A stop-payment order may be renewed for additional six-month periods by a writing given to the bank within a period during which the stop-payment order is effective.
(c) The burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a stop-payment order or order to close an account is on the customer. The loss from payment of an item contrary to a stop-payment order may include damages for dishonor of subsequent items under K.S.A. 84-4-402 and amendments thereto.
History: L. 1965, ch. 564, § 229; L. 1991, ch. 296, § 103; February 1, 1992.
KANSAS COMMENT, 1996
This section is identical to the 1995 Official Text. The section is derived from the former 84-4-403. Subsection (a) has been clarified and the class of persons who can stop payment, or, under the new provision, close the account, has been expanded. Subsections (b) and (c) have been clarified and other stylistic amendments not meant to change the substantive law have been made.
Payment of a customer's check follows an order arising from the drawer-drawee contract; countermand of that order is consistent with the same contract. Furthermore, stopping payment is consistent with the notion that a check is not an assignment of funds giving any vested rights in the account to the holder before payment. Subsection (b) retains the time periods of the former provision. An oral stop payment is authorized, though its effectiveness is limited to 14 days; a written stop payment order is effective for six months. An oral order (usually via telephone) will be confirmed in writing within 14 days, and that writing will extend the effectiveness of the order for another six months. The burden of proof is placed on the customer to establish both the fact of loss and the amount of loss resulting from the drawee bank's payment over the stop payment order. See subsection (c).
With the exception of a a person claiming an interest in the account upon the death of the customer under 84-4-405, the right to stop payment is given only to the customer or those entitled to draw on the account. A payee or other holder of the check cannot stop payment. The stop payment order must describe the item or account with "reasonable certainty." This may vary from bank to bank depending on the system the individual bank uses to identify items and accounts. It may be one or more of the following: the account number, the check number, the amount of the check, the payee's name or the customer's name. Some courts have given customers some leeway in making small errors in stating the amount of checks on which they seek to stop payment. See White and Summers. A new provision is added allowing any one whose signature is necessary to stop payment. A bank cannot disclaim liability for payment over a stop order, as such a provision in the deposit agreement or stop order form would run afoul of 84-4-103(a).
Although the customer clearly has the right under this section to stop payment on standard bank checks, the right is lost once the check is certified (See the reference in subsection (1) to 84-4-303), or if the bank has issued a cashier's or teller's check (in which case the bank is the customer and 84-3-411 is controlling). The leading Kansas case involving a cashier's check is Meador v. Ranchmart State Bank, 213 K. 372, 517 P.2d 123 (1973). The theory is that a cashier's check is "accepted" by the act of issuance, thus cutting off the remitter's right to stop payment. On the other hand, if the issuing bank has its own defense to payment, such as failure of the remitter to pay for the cashier's check as promised, the issuing bank should be able to raise that personal defense against the payee or other holder.
A closely related provision is 84-4-407, which states that a payor bank which pays an item over a stop order is subrogated to the rights of (a) any holder in due course on the item against the drawer; (b) the payee or any other holder of the item against the drawer on the item or the underlying transaction; and (c) the drawer against the payee or other holder with respect to the underlying transaction.
As an example of (a), a bank which pays a check over the customer's timely stop order may step into the shoes of a depositary bank which qualifies as a holder in due course after allowing the payee to withdraw the uncollected funds. In such a situation, the bank could ultimately resist recrediting the customer's account. As an example of (b), even if no holder in due course is in the picture, the bank could recover against its customer if the customer in fact had no defense to payment of the check, and had stopped payment only because of buyer's remorse. As an example of (c), a bank which pays over a stop order could step into its customer's shoes and recover against the payee for any breach of contract.
CASE ANNOTATIONS
1. Consumer protection act (K.S.A. 50-623 et seq.) inapplicable to negotiable instruments law; drawer liable to subrogee of holder in due course. First Nat'l Bank v. Jones, 17 Kan. App. 2d 269, 271, 839 P.2d 535 (1992).
2. Payor bank honoring check where no stop payment order applied did not breach deposit contract with drawer. IBP, Inc. v. Mercantile Bank of Topeka, 6 F. Supp. 2d 1258, 1268 (1998).