A customer opened a new account with a Cashier's Check from another bank made payable to only him and showing only him as the remitter. He was notified by the issuing bank's branch manager the next day that they were placing a stop payment on the Cashier's Check because they made a mistake in giving him all the money (apparently there is a domestic issue and the funds were taken from a joint account). We placed a 'reasonable cause' hold on the funds and just received notice the check is coming back "Payment Stopped."

If we want to fight the return with the issuing bank, how do we use our rights under UCC 3-411? Our concern is that we're getting one story from our customer in which he claims the money is his. He does confirm that he did not request the stop payment to be placed on the check. Can the issuing bank leagally stop payment on a Cashier's check made payable to another person without that person's consent? If what our customer is telliing us is true, and truly, regardless of whether it is true or not, it is the issuing bank who made a mistake and is trying to protect their loss by stopping payment on the check.

What are the ramifications between our bank and the customer if we accept the stop payment order and debit the money from his account? Does our bank have an obligation to protect our customer from the illegal stop payment and fight the issuing bank?

Just curious why you would want to get involved in a possible domestic dispute? If you are not out any funds from the check (which it appears you are not) I would let your customer work it out with the other bank. Process the return, give him the check and let him fight over it.

Honestly, while I can see not wanting to get in the middle of a domestic dispute, I would also be angry at the bank for placing a 'Stop Payment' when legally it can't be done.

I think I wore my consumer protection hat this morning and not my big meanie banker hat. What Duchess says is true for me; it really bothers me that the issuing bank placed the stop payment because they are trying to protect themselves from a CSR 'error'. This type of action, and disregard for the consumer, perpetuates the banking industry's negative image. It's not that I want to get involved in a domestic dispute; I want this big, huge, collosal bank to not get away with something I know is illegal and wrong. But where principles and money collide - money usually wins.

I think me and my idealistic hat need to find a new career - or at least get lots of comfort food for lunch

Then can send a letter of indemnification. I would not allow the return of Stop Payment but would freeze the funds due to an investigation.

Have you talked to your customer about it? He may prefer that the check be charged back and re-issued correctly to avoid further complications in court for willingly accepting money that he knows is not his. Undue enrichment.

Assuming you still have the money, you do not have a dog in this fight. Whenever you want to protest a moral issue do it with your time and money, not your bank's.

As a complete aside, no, a bank cannot stop payment on a cashiers check except in very narrow circumstances that are not present here.

Ken, do we not still have an obligation to the customer to keep returns on the straight and narrow?

I was told that if the bank accepted a late return rather than disputing it, we could be held liable by the customer. I am drawing a parallel between the two issues.

Just curious.

I think in this instance it isn't up to you to determine the legality of the stop payment. If it is an illegal stop payment the appropriate recourse is for the payee of the check to hash this out with the bank that placed the stop payment.

Although I really do feel as you do about how wrong it is for the other bank to place a stop payment on a check when they should know fully well that it is illegal.

The very practical problem is how to handle the check if it is, in fact, received as a return item. You can protest loud and long, but if mega-bank digs in its heels (as mega-banks often do), your argument may have to be escalated to the legal department or to outside counsel. If you've already given your customer value for the check, you're a holder in due course, and you have that status going for you (such as it is), in addition to the claim you can make under UCC 3-411 and/or 412.