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Liability for Stop Payment Error

Answered by: 
Brian Crow

Question: 
We have a customer that placed a stop payment on a check. When the check cleared the check number was keyed incorrectly by the depository bank. Due to that happening the stop payment was not a direct hit, and it appeared on our Suspect List. The person checking off that list saw that the check number was different so they allowed the check to pay from the customer's account. Is our bank liable to pay the customer back for the check or does any liability lie on the depository bank?
Answer: 

In order for the bank of first deposit to have been liable, you would have needed to return the check as a stop payment by your midnight deadline. You failed to do that.

If your customer can establish that they lost money as a result of your failure to honor a stop payment (including any fees or costs incurred as a result of other checks being returned NSF) then you owe them the money. Check your state's version of the Uniform Commercial Code.

UCC 4-403(c) The burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a stop-payment order or order to close an account is on the customer. The loss from payment of an item contrary to a stop-payment order may include damages for dishonor of subsequent items under Section 4-402.

First published on 08/27/2023

Filed under: 
Compliance
Filed under compliance as: 
Stop Payments

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