Printable Format84-4a-502. Creditor process served on receiving bank; setoff by beneficiary's bank. (a) As used in this section, "creditor process" means levy, attachment, garnishment, notice of lien, sequestration, or similar process issued by or on behalf of a creditor or other claimant with respect to an account.
(b) This subsection applies to creditor process with respect to an authorized account of the sender of a payment order if the creditor process is served on the receiving bank. For the purpose of determining rights with respect to the creditor process, if the receiving bank accepts the payment order the balance in the authorized account is deemed to be reduced by the amount of the payment order to the extent the bank did not otherwise receive payment of the order, unless the creditor process is served at a time and in a manner affording the bank a reasonable opportunity to act on it before the bank accepts the payment order.
(c) If a beneficiary's bank has received a payment order for payment to the beneficiary's account in the bank, the following rules apply:
(1) The bank may credit the beneficiary's account. The amount credited may be set off against an obligation owed by the beneficiary to the bank or may be applied to satisfy creditor process served on the bank with respect to the account.
(2) The bank may credit the beneficiary's account and may allow withdrawal of the amount credited unless creditor process with respect to the account is served at a time and in a manner affording the bank a reasonable opportunity to act to prevent withdrawal.
(3) If creditor process with respect to the beneficiary's account has been served and the bank has had a reasonable opportunity to act on it, the bank may not reject the payment order except for a reason unrelated to the service of process.
(d) Creditor process with respect to a payment by the originator to the beneficiary pursuant to a funds transfer may be served only on the beneficiary's bank with respect to the debt owed by that bank to the beneficiary. Any other bank served with the creditor process is not obliged to act with respect to the process.
History: L. 1990, ch. 367, § 33; L. 1991, ch. 294, § 28; July 1.
KANSAS COMMENT, 1996
This section is identical to the 1995 Official Text.
"Creditor process" in subsection (a), is the generic term for garnishment pursuant to a court order.
Subsection (b) deals with the issue of priority between a payment order and creditor process, and provides that creditor process has priority only if it is received by the bank affording a reasonable time for the bank to act on it before the bank accepts (84-4a-209(a)) the payment order. The timing concept is identical to that used in 84-4-303. After the bank has accepted the order by executing it, it has priority to funds in the sender's account to pay for the sender's payment order over the creditor process.
Subsection (c) addresses creditor process against the beneficiary's interests. Paragraph (1) permits the bank to setoff against the beneficiary's account or to apply it to the creditor process. If the bank is served with creditor process, the bank has a reasonable time to act on it in paragraph (2). If the beneficiary withdraws before the expiration of a reasonable time for the bank to act on creditor process, the beneficiary's withdrawal has priority. Where creditor process has been served with time to work on it, and then a payment order is received, the bank must be neutral and accept or reject the payment order on grounds independent of the creditor process. It may not reject the payment order on the basis of the process.
Subsection (d) restricts creditors of the beneficiary to creditor process against the beneficiary's bank. By implication, subsection (b) appears to restrict creditor process against senders to the sender's bank.