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#206819 - 07/01/04 07:01 PM Cashiers Check-Stop Payments
Anonymous
Unregistered

What are your procedures for processing a stop payment request for a cashiers check purchased by your customer, made payable to another entity, the check is lost in the mail...who has the right to place a stop on the check? Now one step further, if the payee signed a registered letter, is the payee now responsible for placing a stop on the check if they loose it?

Thanks for the input!

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#206820 - 07/01/04 07:48 PM Re: Cashiers Check-Stop Payments
John Burnett Offline
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John Burnett
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Whatever your bank might refer to as a stop payment on a cashier's check just isn't a legal stop payment -- make no mistake about it. A bank cannot refuse payment on its own cashier's check if it is presented for payment unless the bank has a claim against the person presenting the check. The reference here is UCC §3-411.

Either the remitter or payee of the cashier's check, under UCC §3-312, may complete and sign a written statement that the check is lost. The claim does not mature until the 90th day following the issue date of the orginal check. Before the 90th day, the bank must honor the original check if it is presented properly. After the 90th day, the bank may, if it has not previously paid the original check, pay the claimant the amount of the original check. Once the bank has honored the claim, it may refuse to pay the original if it ever shows up by stating that it had honored the claim under §3-312.

The bank cannot require the claimant to indemnify the bank if the bank elects to honor the claim after the 90th day. However, if the bank elects to risk double "jeopardy" by honoring the claim before the 90th day, it may require the claimant to indemnify the bank against having to honor the original item. But the indemnification must be void after the 90th day from the issue date.

A long way to go to say one does not place a stop payment on a cashier's check.
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#206821 - 07/02/04 03:35 PM Re: Cashiers Check-Stop Payments
BeachGirl Offline
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Posts: 206
Myrtle Beach, SC
John, I'm trying to make sure I understand this. Customer purchases the cashier's check, then comes back to the bank and claims it is lost or stolen, we can place a stop payment, but if it is presented by the original payee within 90 days, we must pay it? Are we required to notify the original payee that we have placed the stop pay? Are we required to wait 90 days before issuing a replacement check? Thanks for your help on this subject. We have just had a situation where we think the remitter pulled a scam by placing a stop payment, we issued a replacement, then he endorsed it as "not used for purposes intended" and put it back in his account. Now the original payee has presented the original check for payment. I think we may need to revise our P&P and need guidance! Thanks!
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#206822 - 07/02/04 05:04 PM Re: Cashiers Check-Stop Payments
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At least for the first 90 days, a cashier's check is as good as cash. Within 90 days, the paying bank must honor the check. Otherwise, what would be the point in a cashier's check to begin with....without that guarantee, it's just a check.

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#206823 - 07/02/04 06:09 PM Re: Cashiers Check-Stop Payments
Paragon Offline
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Before the 90th day, the bank must honor the original check if it is presented properly. After the 90th day, the bank may, if it has not previously paid the original check, pay the claimant the amount of the original check.




If it is presented properly? What does that mean? For example, if the endorsement is forged - it does not get paid, correct? Also, only the bank can place a stop payment and normally an idemnity agreement or bond is first secured from the purchaser to support that action.

It's my experience that a stop payment needs to be placed - if simply as an effective tracking system with a decision to return reflecting the special status of CC's. Indemnity agreements and a bond when one is unsure of the customer also need to be in place.

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#206824 - 07/02/04 08:27 PM Re: Cashiers Check-Stop Payments
John Burnett Offline
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OK. I'll try this one more time.

Bank sells cashier's check to remitter, made payable to payee. Then the cashier's check is lost or stolen.

Either the remitter or payee can sign a statement of claim under penalties of perjury and ask that the bank reissue or otherwise make the claimant whole.

The bank is under no obligation to do anything for 90 days from the issue date of the original check. Once the 90 days is up, it may honor the claim after assuring itself that the original check hasn't been paid. To call attention to the check, the bank may place what I'll call an internal stop on the file. It will act like a stop payment on a normal check in that it will set off bells and whistles if the check is presented.

But that doesn't excuse the bank from paying the original check if it's presented for payment by a bona fide holder in due course during the 90 days. Unless the bank has a claim against the person presenting the check for payment, or has reason to doubt the presenting person is entitled to enforce payment, it must pay or suffer the consequences under 3-411 and 3-412. The people it could have a claim against would be the remitter or the payee, if the bank had paid the claim (issued a replacement check) before the end of the 90 day period.

If the bank issues a replacement check during the 90-day waiting period, it does incur a risk. It is accommodating the claimant, and is entitled, I believe, to some form of indemnity if the bank has to double pay by honoring the first cashier's check. Once the 90 days is up and the bank can legally avoid paying the first check, the indemnity is no longer needed, and should be cancelled.

Until the original check is either paid or recovered and voided, the bank should keep on its system the internal stop described above, and it should be "evergreen," without an expiration date.
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#206825 - 07/02/04 08:53 PM Re: Cashiers Check-Stop Payments
BeachGirl Offline
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Thanks to all who have responded. John, I have, since posting this question, read the numerous Q&A posted in the Info Vault and your numerous answers to same or similar questions. I think I've got it now! Thanks for addressing it one more time for me!!
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#206826 - 07/02/04 09:11 PM Re: Cashiers Check-Stop Payments
Paragon Offline
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Unless the bank has a claim against the person presenting the check for payment, or has reason to doubt the presenting person is entitled to enforce payment, it must pay or suffer the consequences under 3-411 and 3-412.




But, you didn't answer my question: If the bank believes that the endorsement is forged, the check goes back, correct? That falls under "doubt" and my belief is that any form of doubt, relating to the endorsement, should cause the CC to be returned with the necessary supporting documentation. Paying a CC under doubtful conditions, relating to the endorsement would be a bad practice as 99% of the time you will never see the CC again. Therefore, you cannot return a CC due to a stop, but only when there is doubt relating to the endorsement.

John: we may be saying the same thing, but line personnel need to take action and simply paying a CC under doubtful circumstances is much worse than returning the CC immediately to put all interested parties on notice that there is a problem.

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#206827 - 07/02/04 09:17 PM Re: Cashiers Check-Stop Payments
John Burnett Offline
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I agree wholeheartedly that, if the bank believes the indorsement is forged, it has "reasonable doubt whether the person demanding payment is the person entitled to enforce the instrument." (from 3-411(c)(iii))

And in that case, the bank would be justified in not paying the check.
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#206828 - 07/09/04 04:01 PM Re: Cashiers Check-Stop Payments
BeachGirl Offline
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I think that my state did not adopt Section 3-312 of the UCC. What now?
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#206829 - 07/09/04 06:40 PM Re: Cashiers Check-Stop Payments
John Burnett Offline
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You are apparently correct in saying that South Carolina has not yet adopted the 1990 amendments that include §3-312.

I suggest you contact a local attorney versed in the vagaries of the UCC in South Carolina.
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#206830 - 07/13/04 12:01 PM Re: Cashiers Check-Stop Payments
Elwood P. Dowd Offline
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I'm not a South Carolina attorney, but I do spend a week at Fripp Island every summer...

The "old" version of the UCC left banks to fashion their own response to lost or stolen cashiers checks; the results were haphazard and often unfair. Nevertheless, you could not stop payment on a cashiers check under that version of the UCC either. A cashiers check is "accepted" at issuance; it is a continuing liability of the bank and any action taken to replace it should reflect that fact. The choices were:

1) Do nothing. They lost it, it's their problem. (This would be the "unfair" example, but it was widely used.)
2) Require an indemnification agreement from whomever lost the check, the remitter or the payee. If the first check shows up and you have no reason to question the endorsement, you have the contractual right to go after the person who signed the agreement. Whether they give you the money will depend on a)their ability to pay and b) their willingness to pay.
3) Require an indemnification bond from an insurer acceptable to the bank. It's up to the party seeking a replacement to find the insuror and pay the premium. (It will not be easy to find the insuror and the premium will be significant.)

Notice: Due to the reference to SC law, this thread changed midstream. This response is wholly irrelevant to banks in states that adopted 3-312.
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#206831 - 07/13/04 01:10 PM Re: Cashiers Check-Stop Payments
BeachGirl Offline
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Myrtle Beach, SC
Thanks, Ken. Fripp is a great place. I've had some good times there myself.

I have spoken with a local attorney who advised that we get an indemnification from the original payee. Once that is received, we can issue a replacement check and send it certified mail to the original payee with the understanding that we will not pay the original item if it shows up. Hopefully, this will elminate any future losses like we just suffered. Hard lesson to learn, but it could have been worse, I guess.

Thanks again to all who responded! Have a great day!
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#206832 - 06/23/05 04:51 AM Re: Cashiers Check-Stop Payments
Anonymous
Unregistered

What if this lost cashier's check is causing someone to receive a 3 day notice on the rent an the landlord intends to evict? Not everyone has extra money and a 90 day hold could seriously harm a family living paycheck to paycheck. How should this be handled?

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#206833 - 06/24/05 06:46 PM Re: Cashiers Check-Stop Payments
John Burnett Offline
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John Burnett
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UCC 3-312 prescribes certain action in the event a check is lost, stolen or destroyed. It protects the issuing bank if the procedures are followed and the bank waits until the 90-day period expires.

The bank is free to risk double-payment if it wishes to replace a lost cashier's check before the end of the 90 days. In such a case, the bank may wish to revert to the former practice of obtaining an indemnity agreement (and in some cases, requiring that the claiming party supply an indemnity bond). The agreement/bond should expire at the end of the 90 day period.

Personal money orders are much better vehicles for rent payments for persons without checking accounts. They are typically a lot cheaper than cashier's checks, and are subject to stop payment orders.
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John S. Burnett
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#206834 - 08/17/05 12:03 PM Re: Cashiers Check-Stop Payments
Anonymous
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What is the new rule?

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#206835 - 08/17/05 12:44 PM Re: Cashiers Check-Stop Payments
Elwood P. Dowd Offline
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Next to Harvey
The "new" (1990) rule, followed by the majority of states, is the one John describes in post #212474. The old, made up remedies are discussed in the post that specifically relates to SC and is written in the past tense.
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