Opinion ID: 2508359
Heading Depth: 1
Heading Rank: 4

Heading: The statutory bar

Text: K.S.A. 84-3-420(a) states: The law applicable to conversion of personal property applies to instruments. An instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment. An action for conversion of an instrument may not be brought by (1) the issuer or acceptor of the instrument or (2) a payee or endorsee who did not receive delivery of the instrument either directly or through delivery to an agent or a copayee. (Emphasis added.) The UCC Official Comment explains that [t]here is no reason why a drawer should have an action in conversion. The check represents an obligation of the drawer rather than property of the drawer. In a similar fashion, the 1996 Kansas Comment states: Plaintiffs are generally restricted to the persons to whom the instrument is payable and who have received the instrument. The maker or drawer of the instrument is not a proper plaintiff, nor is the payee of an instrument which is not delivered. This is a codification of prior decisions. (Emphasis added.) K.S.A. 84-3-420, Kansas Comment, 1996, subsection (a). Here, Mid-Continent is the drawer, maker, or issuer. K.S.A. 84-3-103(3) (drawer is person who signs or is identified in a draft as a person ordering payment); K.S.A. 84-3-103(5) (maker is person who signs or is identified in a note as a person undertaking to pay); K.S.A. 84-3-105(c) (issuer means a maker or drawer of an instrument). Hillcrest Bank is the drawee or payor. K.S.A. 84-3-103(2) (drawee means a person ordered in a draft to make payment); K.S.A. 84-4-105(3) (payor bank is the bank that is the drawee in a draft). Capital Homes is the payee. See Black's Law Dictionary 1129 (6th ed. 1990) (payee is the person in whose favor a bill of exchange, promissory note, or check is made or drawn; the person to whom or to whose order a bill, note, or check is made payable; the person to whom an instrument is payable upon issuance). The language of the statute is clear; as an issuer of the instrument, Mid-Continent has no cause of action for its conversion. Grand Rapids Auto Sales, Inc. v. MBNA America Bank, 227 F. Supp. 2d 721 (W.D. Mich. 2002), is on point. There, plaintiff's managerial employee wrote checks on plaintiff's corporate account to defendant bank for 3 years in payment of her husband's personal credit card debt with the bank. The bank accepted the checks and credited the proceeds to the husband's credit card debt. The plaintiff brought suit for, among other things, conversion of the funds. The court granted the bank's motion for summary judgment, and, citing § 3-420, held: The [conversion] claim also fails . . . because `the drawer of the check may not maintain action for conversion, because the check represents an obligation of the drawer rather than property of the drawer.' Pamar Enters. Inc. v. First State Bank of E. Detroit, 228 Mich. App. 727, 735, 580 N.W.2d 11, 15-16 (1998) (citing M.C.L. § 440.3420[1]). GRAS, as the drawer of the checks, is precluded from maintaining a conversion claim. 227 F. Supp. 2d at 730. See also Continental Cas. Co. v. American Nat'l Bk., 329 Ill. App. 686, 697, 768 N.E.2d 352 (2002) (Section 3-420[a] is inapplicable because under this section the issuer of the instrument cannot bring an action for conversion of the instrument.); IBP, Inc. v. Mercantile Bank of Topeka, 6 F. Supp. 2d 1258 (D. Kan. 1998) (Drawer IBP acknowledged that it had no valid claim for statutory conversion under the UCC because of K.S.A. 84-3-420[a]: The rationale for precluding a drawer from maintaining a statutory conversion action is that `[t]he check represents an obligation of the drawer rather than the property of the drawer.'). The trial court correctly held that K.S.A. 84-3-420(a) barred Mid-Continent's conversion action.