Customer placed a stop payment on check #12345. Check came through and the system read the number as #345 so it didn't reject. Customer gets their statement and sees the check was paid. Since they just got their statement nearly a month has passed since the check cleared. Since so much time has passed can we still collect from the payee of the check as a stop payment item?

Nope - the bank is going to eat this one.

Are we just out of time to try to get it from the payee or is there a rule that we can't go back to the payee? I need documentation to back up this answer with our operations dept.

You had your midnight deadline to return the check to the bank of first deposit. You failed to do that and any attempt at return at this point would be a late return.

This is between you and your customer. You have no legal or moral basis for sending it back to the payee or bank of first deposit.

Look at your version of the UCC. The model version says at 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.

You're entitled to inquire of the customer about the circumstances before you pony up the funds. However, I suggest you start with the idea that this is your bank's fault, consider the amount of money involved, and then go from there.

Thanks for the input. The MICR line only allowed for 4 characters for the check number but the number in the corner had 5 (customer had purchased their own checks, not from the bank's vendor as we only allow 4). Turns out the check had actually cleared the account the day before the stop pay was placed. The employee looked to be sure that the check number given by the customer hadn't cleared before placing the stop pay. Since that check # hadn't cleared the stop pay was allowed. So now that we see exactly what happened the check had already cleared and we will refund the stop pay fee to our customer.

Agreed. Only as makeweight, see if your signature card or stop payment order talks about the customer assuming the risk of using third parties to print their checks. Some do.

You said the stopped check had already cleared the account the day before. This can make things sticky. Depending on whether the check was cashed over the counter or presented as an inclearing item, the time of day the stop payment was placed by the customer, and whether your bank has an established cutoff time for the acceptance of stop payments, the customer may or may not have been in time to stop payment on the check irrespective of the fact it had already posted to the account.

True, more facts can always change the answer. Learning that the customer did not incur any real damages resulting from the bank's paying over the stop payment would change it again. Based on what's known at this point, I'm comfortable with ltackett's response.

While the object lesson is the same regardless of the amount, the amount will likely affect the bank's decision making.

John, the check came over the counter in a deposit.

Ken, I don't know the story but the payment was for an appraisal that I can only imagine took place since the appraisal company was depositing it.

I'm not going to dig deeply into the implications of the fact the check was processed as part of a deposit the day before the stop payment was issued by the customer.

Instead, I will simply refer to whatever version of UCC section 4-303 is in effect in your state. You'll see there why I referred to a cutoff time and asked how the check was presented.

If the customer bought an appraisal and received an appraisal, then it will be hard for him to prove damages, if the relevant paragraph from the UCC exists in your state's version. If he didn't like the appraisal, that was between him and the appraiser. Stopping payment on the check was not an acceptable option.

Your plan to refund the stop payment fee is appropriate.

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:
(a) The bank accepts or certifies the item;
(b) The bank pays the item in cash;
(c) The bank settles for the item without having a right to revoke the settlement under statute, clearing-house rule, or agreement;
(d) The bank becomes accountable for the amount of the item under KRS 355.4-302 dealing with the payor bank's responsibility for late return of items; or
(e) With respect to checks, a cutoff hour no earlier than one (1) 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.

Does this mean that once we accept the item it is too late to place a stop payment even if the cutoff time is the next morning since the accepting of the item was the earliest of the choices? Or since (E) starts out saying "with respect to checks" then that overrides the others when dealing with checks?

Acceptance has a very specific definition under the UCC (see section 3-409(a)) that probably does not apply in this situation.

(c) is the clause that applies here. You settled for the item when the depositor's credit became final and irrevocable.

So you are saying that when it was accepted for deposit and credited to the customer's account it was then too late to put a stop pay on it even within the first hour on the next day?

No. And at 10 a.m. on the banking day after presentment you probably have not exhausted your right to revoke a provisional settlement (para. (c)). The operative paragraph is (e) in determining whether the stop order was too late.

As Ken pointed out earlier, even if the stop order was still timely and in spite of the fact that you ultimately paid the check, the issuer of the check isn't automatically entitled to recovery of the amount of the check. He has to show damages caused by your payment of the check. If he got an appraisal for his money (even if he doesn't like the bottom line of that appraisal), he got value from the payment, and he's got no claim on you for paying the check.