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#137715 - 12/09/03 10:01 PM Stop Payment

We have a customer who owns a gun shop. He sold a gun to a guy for $825, a few days later the guy came back to the gun shop & said he couldn't afford the gun & wanted to sell it back. Our customer bought the gun back for $700. Out customer received the original $825 check back NSF from the guy's credit union. Our customer in turn put a stop payment on the $700 check. The credit union cashed the $700 check for their customer & is now threating to take our customer to court because he put a stop payment on the check & they are now out the $700. Does anyone have any guidance for our customer. We don't understand what grounds the credit union would have to sue on. Thanks.

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General Discussion
#137716 - 12/09/03 10:55 PM Re: Stop Payment
BrendaC Offline
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Joined: Sep 2001
Posts: 6,029
Sweet Home AL
Your state code should outline stop payment rules. In AL, a customer can put a stop payment on a check for any reason. We can accept both oral and written stop payment orders (some states do not recognize oral stop payment orders). Check your state law. If you don't have a copy, you can access it online at
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#137717 - 12/09/03 11:11 PM Re: Stop Payment
Pup Offline
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Sounds like your customer is in the clear on this one. Actually, it sounds like your customer is one of the only ones out there putting stop payments on checks for legitimate reasons. Let the other bank try to collect.

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#137718 - 12/10/03 05:29 PM Re: Stop Payment
John Burnett Online
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John Burnett
Joined: Oct 2000
Posts: 39,793
Cape Cod
Ideally, the credit union member who perpetrated this fraud -- that's what this is, a fraud -- should be the one paying up. He wrote a bum check for $825 and managed to scam the dealer out of $700.

However, the UCC isn't always concerned with who OUGHT to pay the piper. It's often more concerned with making things, like check acceptance, work.

In this scenario, the gun dealer (your customer) had every right to stop payment on the check. And you had to honor that stop. But that doesn't extinguish the dealer's responsibility to the credit union, which is apparently an innocent holder in due course here. The credit union is entitled to enforce the check against the maker of the check (the dealer) to make itself whole.

It's small comfort here, but your bank is out of the picture on this claim. The credit union goes around you to make its claim directly on the dealer.

The dealer was in the best position to prevent the scam artist from succeeding. All he had to do is refuse to issue his check until the original rubber check had a chance to bounce.
John S. Burnett
Fighting for Compliance since 1976
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#137719 - 12/10/03 06:01 PM Re: Stop Payment
RayLynch Offline
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Joined: Oct 2003
Posts: 544
John is correct in pointing out that the credit union is an apparent holder-in-due course. Check your state's version of UCC Section 3302, which defines "holder-in-due course".

If the credit union had no knowledge that the gun shop's check was subject to a stop payment order AND the gun buyer withdrew the funds represented by said check from his/her credit union account - then effectively the gun buyer received the credit union's funds. That fact pattern would satisfy the "for value" requirement under UCC Section 3302 and permit the credit union to prevail over the gun shop.

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#137720 - 12/12/03 01:00 PM Re: Stop Payment
Elwood P. Dowd Offline
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Elwood P. Dowd
Joined: Aug 2001
Posts: 21,939
Next to Harvey
John and Ray are correct. The credit union appears to be a holder in due course and is not obligated to listen to the gun dealer's rightful claim that he was defrauded.

1)Any merchant does well to verify the method of payment before issuing refunds.

2)Stopping payment on a check is oftentimes the very best way to make a bad situation worse.
In this world you must be oh so smart or oh so pleasant. Well, for years I was smart. I recommend pleasant.

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#137721 - 12/12/03 04:17 PM Re: Stop Payment
RBanker Offline
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Joined: Jul 2003
Posts: 2,675
Austin Texas
I really hate to sound un-educated, but I'm not sure what the fuss is about. Isn't the owner of the gun shop rightly entitled to place a stop payment on his check? SHouldn't the credit union have made sure it had CYA (covered it's assets) by ensuring recourse (offsetting balance, etc) before cashing the check?

I'm trying to understand why the gun shop owner is suddenly the bad guy here?

I certainly agree that the shop owner should have a policy that only payment by cash gets an immediate refund, checks 10 days, etc.
My comments are absolutely no reflection of, nor influenced by, my employer - take them at your own risk.

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#137722 - 12/12/03 07:53 PM Re: Stop Payment
LiL Bit Moore Offline
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LiL Bit Moore
Joined: Nov 2002
Posts: 624
I don't think anyone is labeling the gun shop owner a bad guy. Only facts of the law have been presented. Yes, he had the right to issue a stop payment. He has that right even if he had not recieved the return item. However, as always reminded, the stop payment does not relieve the underlying obligation to honor the item issued. He basically used the stop payment to effect a right of offset he probably did not have a legal right to do. Although, I'm sure many people would have been tempted to do the same thing, there is no legal basis to do so.

In return, he still has a claim on the check the customer originally issued to pay for the gun in the first place. Seems to me the customer who purchased the gun wouldn't be making the brightest move to sue the gun shop owner. And, IMO, the Credit Union made the decision to accept such a risk when they decided to give immediate credit on the item.

Has your customer, the gun shop owner, tried sending the item for collection?
An error is not a mistake until you refuse to correct it

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