Stopping Payment On A Cashier's Check

Question: I heard you say during a training session that "...you cannot stop payment on a cashier's check." We stop payment on our official checks all the time, for many reasons. Can you give me line and verse in the Uniform Commercial Code that says you can't? My people don't believe that you can't stop payment.

Answer: There is the ever present distinction between the right to do something and the power to do something. Clearly, the bank has the power to stop payment (or, more accurately, to refuse payment) of its own cashiers check at any time and for any reason.

However, doing so exposes the bank to potentially significant liability (including consequential damages in an appropriate case) under UCC Section 3-411. If the check is presented to you by a holder in due course, who has no knowledge of there being anything wrong with the check, and you refuse to pay it, you can be sued for failure to pay. "...the person asserting the right to enforce the check is entitled to compensation for expenses and loss of interest resulting from the nonpayment and may recover consequential damages if the obligated bank refuses to pay..." The bottom line is that the only defense the bank is normally entitled to assert in its own right is failure of consideration (normally because the check was issued against uncollected funds that later turned out to be no good) and even that defense is worthless against a holder in due course.

Thanks to Mark Hargrave, Esq., Shook, Hardy and Bacon, LLP, Kansas City, MO, for his assistance with this response.

Copyright © 2002 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 12, No. 8, 10/02