84-4a-205. (a) If an accepted payment order was transmitted pursuant to a security procedure for the detection of error and the payment order: (i) Erroneously instructed payment to a beneficiary not intended by the sender; (ii) erroneously instructed payment in an amount greater than the amount intended by the sender; or (iii) is an erroneously transmitted duplicate of a payment order previously sent by the sender, the following rules apply:
(1) If the sender proves that the sender or a person acting on behalf of the sender pursuant to K.S.A. 84-4a-206 complied with the security procedure and that the error would have been detected if the receiving bank had also complied, the sender is not obliged to pay the order to the extent stated in subsections (2) and (3).
(2) If the funds transfer is completed on the basis of an erroneous payment order described in subsection (a)(i) or (a)(iii), the sender is not obliged to pay the order and the receiving bank is entitled to recover from the beneficiary any amount paid to the beneficiary to the extent allowed by the law governing mistake and restitution.
(3) If the funds transfer is completed on the basis of a payment order described in subsection (a)(ii), the sender is not obliged to pay the order to the extent the amount received by the beneficiary is greater than the amount intended by the sender. In that case, the receiving bank is entitled to recover from the beneficiary the excess amount received to the extent allowed by the law governing mistake and restitution.
(b) If (i) the sender of an erroneous payment order described in subsection (a) is not obliged to pay all or part of the order, and (ii) the sender receives notification from the receiving bank that the order was accepted by the bank or that the sender's account was debited with respect to the order, the sender has a duty to exercise ordinary care, on the basis of information available to the sender, to discover the error with respect to the order and to advise the bank of the relevant facts within a reasonable time not exceeding 90 days after the bank's notification was received by the sender. If the bank proves that the sender failed to perform that duty, the sender is liable to the bank for the loss the bank proves it incurred as a result of the failure, but the liability of the sender may not exceed the amount of the sender's order.
(c) This section applies to amendments to payment orders to the same extent it applies to payment orders.
History: L. 1990, ch. 367, § 13; L. 1991, ch. 294, § 8; July 1.
KANSAS COMMENT, 1996
This section is identical to the 1995 Official Text.
This section applies only if the sender has given one of the erroneous instructions indicated, namely the wrong beneficiary, the wrong amount or a duplicative payment, and if the sender followed the security procedure and if the bank did not follow the security procedure and if the bank's failure to follow the security procedure was the reason the error was not detected. If these conditions precedent are met, then the sender is not obligated to pay the receiving bank, and the bank has the right to reimbursement from the beneficiary to the extent the beneficiary was unjustly enriched.
Subsection (b) is somewhat similar to 84-4-406 because the sender has a duty to discover the error in a reasonable time, not to exceed 90 days. If the sender fails to exercise this duty, and if the sender's failure to notify the receiving bank is the cause of the bank's inability to recover from the beneficiary, the sender is liable for the loss up to the amount of the payment order.