Recently our operations dept has placed 2 stop payments on large cashiers checks based on the fact that the remitter purchased these checks with bad funds. We however did not discover this until several days later when some deposits were returned. We now have been notified by the payee who claims to be holder in due course on these items, demanding the immediate replacement of the cashiers checks stating that they are irrevocable and issued by our bank having nothing to do with the account holders. He has given us 10 days to replace the items or he will file law suit for non-compliance of UCC codes pertaing to cashiers checks and holders in due course. We have checked and this payee is not listed on the corporate checking account which purchased the items. Did our operations dept. leave our behinds hanging in the wind on this one or what ?

yes, your behinds have been left in the wind, that hdc has a rightful claim not only for the face amount, but for all damages allowed under ucc law. teach ops dept to do nothing if not sure of the recourse !

Your only protection might be the possibility that the alleged HDC is actually the party who purchased the check. In that case, you have an out. If you can prove that the HDC knew of your claim against the remitter before accepting the cashier's check from the remitter (this is called collusion), you also may have a claim.

Otherwise, your behind is most definitely (as you so elegantly put it) in the wind.

Sorry to add to the bad news replies, but a cashier's check is not stoppable like that. When you issue a cashier's check, you should know for certain that the funds are good. We accept only cash or on-us checks (guaranteed funds) for the purchase of a cashier's check.

Although you are liable to the Holder in Due Course, the customer who purchased the check is liable to you. Maybe he/she doesn't have offsetting funds, but at the very least, he/she will be liable to you in a court of law.