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Stopping Payment on a Cashier's Check
by John Burnett, BOL Guru

Question: If a stop payment is placed on a cashier's check, does it have to be placed within 90 days of the issue date? Does the party placing the stop have to provide a bond in twice the amount of the check?

Answer: I do wish we could stop using the phrases "stop payment" and "cashier's check" in the same sentence. Juxtaposing the two can get a bank into a lot of trouble.

There is simply no such thing as a stop payment on a cashier's check. There is a refusal to pay. Splitting hairs? Yes. But that's the stuff of litigation.

If a bank refuses to pay its cashier's check, it may be liable to the presenting party for compensatory damages and consequential damages. The bank has an "out" only if it can assert a claim or defense against the person entitled to enforce the instrument (and a couple of real technical loopholes). So, if the bank issued a cashier's check in error (closing an account for too much money, for instance), it could refuse to pay the cashier's check for the payee, assuming it's the owner of the closed account. But it could not refuse to pay for a third party -- including a presenting bank -- if that third party is a holder in due course. [Ref. UCC 3-411]

The "lost, destroyed, or stolen" cashier's check situation is dealt with in UCC 3-312. Under these limited circumstances, the remitter or payee may sign a declaration of loss and assert a claim, which becomes enforceable no earlier than 90 days from the date of the cashier's check. That means one may start the process after 90 days and the claim becomes immediately enforceable.

If the bank allows a payment to be made to the claimant before the claim is enforceable, the bank risks the possibility that it will also have to pay the original cashier's check should it miraculously be presented. In those cases, it's often the practice to require a bond or some other mechanism to recover funds from the claimant. But there is not, to my knowledge, any legal or regulatory requirement for the bond.

First published on 05/5/03

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