Status of collecting bank as agent and provisional status of credits; applicability of article; item endorsed "pay any bank"

84-4-201. Status of collecting bank as agent and provisional status of credits; applicability of article; item endorsed "pay any bank". (a) Unless a contrary intent clearly appears and before the time that a settlement given by a collecting bank for an item is or becomes final, the bank, with respect to the item, is an agent or subagent of the owner of the item and any settlement given for the item is provisional. This provision applies regardless of the form of endorsement or lack of endorsement and even though credit given for the item is subject to immediate withdrawal as of right or is in fact withdrawn; but the continuance of ownership of an item by its owner and any rights of the owner to proceeds of the item are subject to rights of a collecting bank, such as those resulting from outstanding advances on the item and rights of recoupment or setoff. If an item is handled by banks for purposes of presentment, payment, collection, or return, the relevant provisions of this article apply even though action of the parties clearly establishes that a particular bank has purchased the item and is the owner of it. (b) After an item has been endorsed with the words "pay any bank" or the like, only a bank may acquire the rights of a holder until the item has been: (1) Returned to the customer initiating collection; or (2) specially endorsed by a bank to a person who is not a bank. History: L. 1965, ch. 564, § 210; L. 1991, ch. 296, § 82; February 1, 1992. KANSAS COMMENT, 1996 This section is identical to the 1995 Official Text and was substantially amended in 1991, as noted. The other amendments are primarily stylistic and are not meant to change the substantive law. Subsection (a) represents an intentional abandonment of the pre-code Bank Collection Code approach which based many of the rights and duties of banks in the collection chain on variations in the form of indorsements, variations which would impose a difficult burden of examination on such banks. Rather, this subsection makes the pertinent provisions of Article 4 applicable to substantially all items handled by banks for collection, presentment or payment, regardless of the form of indorsements, while at the same time establishing a presumption of agency or subagency status of collecting banks (compare Noble v. Doughten, 72 K. 336, 83 P. 1048 (1905) with Beach v. Moser, 4 K.A. 66, 46 P. 202 (1896)) for purposes of such later specific rules as risk of loss (84-4-214), preference rights (84-4-216), direct rights against the payor bank (84-4-302) and other disputes where the distinction between an owner and an agent is important. The prima facie agency status of collecting banks is consistent with prevailing law and practice. The most important effect of a depositary bank's status as agent rather than owner is that "any settlement given for the item is provisional." If the item is not paid it can be charged back through the depositary bank to the holder under 84-4-214 and the holder is left with a claim against the drawer and indorsers on the check or on the underlying transaction. As soon as the provisional settlements given by each bank to its transferor "are or become final" upon payment of the item, the agency status of the collecting bank changes to that of debtor—a debtor of its customer. Because the bank is only an agent for collection, an item is owned by the depositor prior to completion of collection. All creditors of the depositor are given the right to attach an item in the process of collection, "subject to rights of a collecting bank such as those resulting from outstanding advances on the item and rights of recoupment or setoff." For example, if the depositor of a $500 check owed his bank $1000 on a separate automobile loan, the bank would have priority as to the item over other creditors of the depositor even if it had not yet exercised its right of setoff. The same result would follow if the customer's checking account were $1000 overdrawn and the deposit decreased the overdraft to $500. This subsection has received only clarifying technical and stylistic amendments. The cross reference to some of the sections on final payment (now 84-4-214 and 84-4-215) have been deleted because there are other methods for final settlement. Subsection (b) permits a bank to indorse an item in such manner as to keep it in banking channels and to reenter general circulation by a specific bank indorsement. For a discussion of circumstances under which a depositary bank moves from collection agent to actual owner of an item, and possibly to holder in due course status, see the Kansas Comment to 84-4-210 and 84-4-211. A leading case on the depositary bank's agency status binding depositor to inter-bank agreements is David Graubart, Inc. v. Bank Leumi Trust Co., 399 N.E.2d 930 (N.Y. 1979).