Pay-Over-Stops: Not Necessarily Your Loss

Stop payments can be put on a check written by a customer on their account with just a phone call-and can be effective even before being confirmed in writing. But even with all our safeguards, we occasionally pay a check in spite of a stop order on record. When this happens, don't be too quick to reimburse the customer for the amount of the check!

Uniform Commercial Code states very clearly that the burden of proof of loss is on the customer, not on the financial institution.

At the very least, if you pay for the check, you have a right to whatever it bought.

For instance, a customer of a midwestern bank ordered a set of glasses from Italy for $1500. When they arrived, two of the ten glasses were broken, so he put a stop on the check.

The bookkeeping department of his bank missed the stop when the check came in two weeks later, and paid the check. The customer discovered the error when he got his statement and came storming in to the bank. DOES THE BANK OWE HIM $1500?

The manager who handled his account sat down and talked to the customer, got the name of the company in Italy that sold the glasses, and purchased two glasses for $300. The customer was satisfied, and the bank was out only $300 instead of $1500. And the bank did not have eight very expensive glasses to try to get rid of!

The point is, of course, that the bank knew the customer did not have the privilege of having the money AND the glasses. If the bank was going to pay for the glasses, then the glasses belonged to them. Don't pay a stop too quickly-it may not be as big a loss as you think!

Copyright © 1990 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 1, No. 1, 1/90