A non-customer brings us a check drawn off of our bank to be cashed. The check was originally deposited into the non-customer's bank account and was returned NSF. When the non-customer brings us the check, the funds are available. However, the teller did not process the check correctly and the next day the check bounces. The check is then returned to the non-customers account at the bank that she had originally deposited it to due to the stamp on the back of the check from the first time that it was processed. Our customer has now placed a stop payment on the check. What is our liability?

Was the stop payment placed on the check after it was cashed or before. If you paid it over the stop payment you are probably liable for amount of the check. Your customer has to show that they actually incurred a loss, and if this was payment for merchandise they should not be entitled to both the money and the merchandise. If you reimburse them for the check, you should ask for the merchandise. Sometimes this in itself will prevent a loss as they want the merchandise. But check your state regulations.

If the stop payment was placed after the check was cashed then you may have no liability at all.

Be amount concious. If we are talking a small amount it may be better to keep your customers good will and pay it rather than argue how right the bank is.

From where the payee sits, final payment has already been made, by cashing the item over the counter at the paying bank. Of course, the depositor may or may not know this, and I'd be curious about the reason for the stop payment. Was the customer actually intending not to pay the payee, or did they simply want to avoid additional NSF fees? Either way, I don't have a concrete answer for you, and I would certainly agree with Don's advice to size the check up against the 'big picture.'

Don't forget that a stop payment order has to be given far enough in advance to give you opportunity to actually do something about it (I don't have the exact language, but you can look it up in the UCC). In Texas, the stop payment order must be in writing.

This stop payment was placed after the check was cashed, however after it was cashed it was returned to payee's bank. It never 'cleared' the account, yet it should have never been sent back to payee's bank for collection.

Kelli
This is in response only to your last post...those posting previously identified the issues.

Your legal position is that, having been cashed, the check was already paid before the stop payment order was received. It was not posted to the account due to an error in handling, but it was still paid. You could inquire as to the reason for stopping payment, but that is inconsistent with your argument that the stop payment was ineffective.

You should assume the customer is not going to buy any of this...

Just occurred to me...the check is still out there.

Moreover, having been returned to the payee's bank, he's probably pretty upset since he cashed it over the counter and then had it subtracted from his account and paid a fee for the privilege. Gee, he's going to be irritated.

Once your bank cashed the check and endorsed it you became liable on the item. You owe the payee the money.

No one is going to buy this.

I agree with you 100%, however my higher ups don't want to eat this check. They are blowing it off, oh-well payee is out of luck. Can you give me any laws or regs that back this up?

You may be in luck. Check UCC 4-303.

§ 4-303. WHEN ITEMS SUBJECT TO NOTICE, STOP-PAYMENT ORDER, LEGAL PROCESS, OR SETOFF; ORDER IN WHICH ITEMS MAY BE CHARGED OR CERTIFIED.
(a) Any knowledge, notice, or stop-payment order received by, legal process served upon, or setoff exercised by a payor bank comes too late to terminate, suspend, or modify the bank's right or duty to pay an item or to charge its customer's account for the item if the knowledge, notice, stop-payment order, or legal process is received or served and a reasonable time for the bank to act thereon expires or the setoff is exercised after the earliest of the following:
(1) the bank accepts or certifies the item;
(2) the bank pays the item in cash;
(3) the bank settles for the item without having a right to revoke the settlement under statute, clearing-house rule, or agreement;
(4) the bank becomes accountable for the amount of the item under Section 4-302 dealing with the payor bank's responsibility for late return of items; or
(5) with respect to checks, a cutoff hour no earlier than one hour after the opening of the next banking day after the banking day on which the bank received the check and no later than the close of that next banking day or, if no cutoff hour is fixed, the close of the next banking day after the banking day on which the bank received the check.
(b) Subject to subsection (a), items may be accepted, paid, certified, or charged to the indicated account of its customer in any order.

Simply put, you paid the item in cash, as stated in (a)(2). Does the maker still have the funds to pay the item? That's who I would look to for payment.

I don't want you to eat it either...when the check is returned to your possession "cash" it the second time and post it to the customer's account. He wrote the check and it was paid in good faith prior to his stopping payment. The powers that be have a choice between taking the heat from the illegitimate complaint your customer will raise or knowingly giving the payee the shaft.

Obviously, the amount is a factor in the payee's analysis, there may not be enough money involved to justify going to court. However, a letter to your primary regulator or your state's Attorney General alleging unfair and deceptive practices is always an option and will yield an instruction along the lines of, "Do the right thing."