Stop Payment Signature Requirement

Question: Is it a requirement somewhere that a customer has to sign a stop payment order form? One of our people says he heard you say at a workshop that signatures were no longer required. But every form I see says a signature is required according to UCC Section 4-403. Will you please confirm if a signature is required or not? We're trying to streamline our operations, but don't want to get into trouble with it.

Answer: This question has come up quite a few times, and you are correct that Section 4-403 states specifically in (b) A stop payment order is effective for six months, but it lapses after 14 calendar days if the original order was oral and was not confirmed in writing within that period.

However, you can also take into consideration Section 4-103 Variation by Agreement (a) The effect of the provisions of this Article may be varied by agreement, but the parties to the agreement cannot disclaim a bank's responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However, the parties may determine by agreement the standards by which the bank's responsibility is to be measured if those standards are not manifestly unreasonable.

By taking advantage of this variation of agreement privilege, many financial institutions are varying their stop payment agreement so that it states that if you put an oral stop payment order on a check, the bank will send you a verification form within ten days. On that form will be noted that "...this is the information on the stop payment order received by this financial institution. If this information is NOT correct, you must notify us immediately. Otherwise the stop payment order noted on this form is valid for six months."

This arrangement relieves you of the burden of "follow-up" on verbal stops that are not verified in 14 days. And it also relieves you of the unverified stop that IS stopped after the 14 day grace period, and is a wrongful dishonor because the reason the depositor did not verify it in writing is because they no longer wanted the stop on and assumed it would drop after the 14 days if it wasn't verified. If you vary your agreement, and change your stop order forms, you can streamline a little. Many financial institutions are handling their stop payments this way now.

Copyright © 2004 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 14, No. 10, 12/04