One of our business customers made a deposit consisting of a large batch of checks. One of the checks in the batch was actually a year old and had been returned to our customer "Payment Stopped."

So - our customer attempts to negotiate this item again, and it went through our work and was paid by the payor bank. The person who wrote the check is now quite upset because she is out the money on an item that she thought was now dead.

My first question then is - Is a check that has been stamped on the front "PAYMENT STOPPED" considered a negotiable item?

Next question - by accepting this check for deposit, have we, as the depository bank, breached our warranty to the payor bank?

Next question - Does it seem reasonble for us to charge our customer for the amount of the item and refund the maker for the amount of the check?

Once a stop payment order has expired and not been renewed, a check is just a stale check. As you know, a drawee bank has the right to dishonor a stale item, but is not compelled to do so, except that it cannot honor the check in bad faith.

So, although the other bank's customer may have a claim against the merchant that held the item waiting for the stop to expire, there's nothing illegal about your bank accepting it for deposit, or the drawee paying it.

You definitely do not owe the other bank's customer (drawer) any duty to reimburse him or her. Don't do it! His/her gripe -- if there is one -- is either with the drawee bank if it dealt in bad faith with the stale date or with the merchant.

There's often two sides to these stories, too. Perhaps the drawer of the check kept the merchandise or refused to deal with the merchant to resolve a dispute, thinking that by stopping payment he/she would put the screws to the merchant by keeping the goods and the money. The merchant might have decided to try slipping the check through later (knowing the law) rather than go to the expense of suing the drawer of the check. In this case, the drawer is undoubtedly miffed, but it's probably because he/she got outfoxed.

Thanks for the response John. I guess, from a consumer perspective, I find it alarming that I can stop payment on the check, the payment can be stopped, and then the check can be paid one year later.

But if the check is stamped "Payment Stopped" on its face, and the check has already been through the work (albiet one year earlier), would that have put us on any type of notice not to accept the check for deposit? I'm thinking about Breach of Warranty wherein we warrant there are no material changes or erasures, etc.

The wording on the banks Stop Payment Order may shed some light on what the banks responsibilities were in this instance. Usually, there is something about the stop expiring in six months.

This time period was originally set as, at the end of the 6 month period, the check would still not be honored because it would then be stale dated.

In honoring a year old stale dated item with Stop Payment stamped on it, the receiving bank has created a good faith issue. Paying an item like this is not showing good faith, and I agree with Bonnie that it is alarming.

Question: If a bank can pay a stale dated item at its option, why even have something called "stale dated"?

I have my opioion on this and would like to hear anyone elses.

I'll bite, Don. I agree that it is cunterintuitive to define a stale date, yet not give the maker any remedy when a stale dated item is paid. As is customary, it would be necesary to identify the party in the best position to prevent the loss if such a remedy were to be implemented. I would have to say that the bank of first deposit is in the best position to prevent the loss. All of us who were tellers probably turned away stale (and post) dated checks at some point. But the proof operators and data entry staff probably cannot make the same claim- at least not to the same degree.

Regarding the situation in question- I have to believe the paying bank simply lets stops 'fall off' the system after six months, and that may be a fairly routine practice. I would also guess that the check number was horribly out of sequence by the time it cleared, and most posting systems will not catch that either. So do the banks actions fit within 'the rule'? Technically- yes. But that doesn't mean that the rule is intuitive or right.

JacFSB
You certainly have nailed the process, and it becomes somewhat inevitable that situations like this will occur with that process in place. When I was a day to day active banker ALL stale dated items were returned, and there was no option to pay them. I vaguely remember that as a regulation, and not as a policy or procedure of an individual bank.

As the technology became available, manual pay filing was eliminated to cut back on personnel and save dollars. Plus it was a gosh awful task that nobody wanted to do. Another reasoning, was few potential losses were prevented by manual pay filing. Here was a hugh expenditure of time and cost that could be eliminated, and the savings would more than offset any losses that occurred due to items automation could not be programmed for. In other words it was statistically prov-en to be cheaper to take the loss than continue with an antiquated process.

Well here we are with the loss and nobody wants to take the hit, so the customer gets it. John has indicated that legally banks have an option, Now when did that get in there? Looks like legislation for the short coming of automation.

In Hawaii there is a something known as "Kina'ole.
Its "Doing the right thing at the right time, in the right place, to the right person, for the right reason, with the right feeling, the First Time." The concept is based on constantly rising standards, because as you do your best you are making continuous improvements.

Thats what needs to happen here. Wouldn't it be something if the amount we are talking about is less than $100.00.

Don - add a zero to your number and you're closer to the target. As I thought about this, it occurs to me that the customer should take the check back to her back and raise holy heck that they paid a check over a "Payment Stopped" notification on the front and the fact that they had already returned the item. (Frankly, I think they should have punched holes in the MICR line, but who does that these days?) Her bank can either take the hit or return it to us.

The issue I wasn't sure about was if having "Payment Stopped" stamped on the check nulled it's negotiability. I also don't know if accepting a check marked "Payment Stopped" would have voided our warranty on the item.

Anyone have a copy of Brady's book on checks? Is this situation covered in there?

In reviewing the UCC and Brady on Checks the desination of "Stop Payment" on checks does not affect the checks's negotiablity. In other words the stop payment order may have expired and not renewed. It affects your bank's liability with your customer. You want the ability to debit your customer's account account for check if returned and the stop payment order still in affect for that check. This is where you may want to place a "hold" on your customer's account until that check clears or returns.

WARNING--DO NOT READ THIS POST--it adds very little to this discussion and may subtract from it. I have not been posting much lately and I guess I just needed to get some stream of consciousness rambling out of my system.

I think there is a little bit of fault to go around here, but whose fault is the question? Did the merchant not give the buyer what was promised? Did the buyer renege on an obligation to pay the $1000. Did the bank act properly in paying the stale dated item?

I do not know the answer to the first two questions, but the bank should have contacted the customer to see if she still wanted this stale dated item paid. I also think her bank had more than some indication that she in fact did not. I don't think Bonnie M's bank did anything wrong--though I do hope she put a hold on the check as Lela mentioned.

With a little bit of effort, the buyer's bank can take the high road with its customer and still not be out the entire amount of the check. It should contact the merchant and see what if any value was given for the check. Ask if there was any complaint about the value given--what was the complaint. Ask if it was in any way defective or not what the check writer wanted.

(I saw John's email saying that the buyer may be trying to weasel out of money owed the merchant. While I generally agree with him, anyone familiar with e-bay and other online auction sites will know that sellers just as often stick it to the buyer by selling them merchandise that does not live up to the description--by a long, long shot.)

The bank could then contact the buyer and ask the same type questions asked of the merchant.

This should not take that much time.

Then, if the bank can get an idea of how much the buyer may have actually lost by the check being paid, the bank could offer to make this good--without admitting liability--and in fact denying it. If the bank can't get an idea of the loss or if the buyer apparently had no loss, then don't offer anything.

This should not take that much time--less time than the employees will spend talking about it with co-workers and on BOL. After it has gathered this information, the bank should be able to make a decision.

Looking up the law is the easy part. However, it is not so easy to do the right thing without all the facts. I believe that to be considered a business person of character, I must not push everything to the bright (or grey) line the law provides and I should not depend on laws to protect me in every circumstance.

I first evaluate the circumstances to see if there is a reasonable outcome without even considering the law. I personally consider the law as a limit to keep unreasonable people from going too far in protecting their rights, rather than a guide as to how reasonable people should act. If we use the law as a guide, we will often be unreasonable.

Besides, the bleepin' lawyers are too expensive to rely on the law in this way. Oops, I meant to say, stick to the law and pay your lawyers princely sums to fight the battle. What was I thinking--I'm taking food from my babies mouths.

Welcome back, "Zaibatsu"! I'll add one more note before hopping the plane to OKC for ABA NCS (See some of you there!).

WARNING - RANT AHEAD!

The UCC has allowed even before the 1990 revisions the payment of a so-called "stale" item. Perhaps because of the annual flurry of dating errors around January 1 (I'm guessing here, folks), banks have had the ability to pay items over 6 months old if done in good faith.

Someone suggested that paying a stale check with a stop payment legend stamped on it is an example of bad faith. Au contraire! If the item is around $1,000 there's a strong possibility it didn't get looked at by a set of human eyes because of the way we do business these days. If you outsort and review items over $5,000 and so does much of your competition, then this becomes a good faith practice in many cases.

I agree that punching holes in the MICR line of stopped checks is a good idea. I recommend it highly. But again, some banks have abandoned that practice for some reason.

I also agree that if the stakes aren't too high, the bank ought to take the hit on this for customer relations. But damn it, I can't plead ignorance of the law if I run a red light, and customers shouldn't be able to hide behind ignorance, either. All of our customer disclosures and contracts warn them about renewing stops and payment of items more than 6 months old (along with a warning about the other famous misconception -- the post-dated check now that the UCC has given us an out there). It would be refreshing if a customer just read some of this stuff once in a while instead of blaming banks for their screw ups.

John - I understand your rant, but I also understand the customer's point of view. They placed a stop payment on the check, and the check WAS STOPPED. Most "lay" people would then assume it has been taken care of, especially after a year had passed.

If the check was actually returned "Payment Stopped", then for how long would a customer have to keep renewing the stop payment order? (at $10 or $20 per order!)

However, in this case, I think the customer needs to go back to their bank that paid the check and not ours.

As for the "bulk filing" defense, if a bank cannot refuse a TIMELY forgery claim because of bulk filing, then I don't believe it can refuse a "bad faith" payment claim. I did find reference to a court case "Charles Ragusa & Son v. Community State Bank, 360 So. 2d 231 (La. 1978) in which a bank had paid a check 3 years after its issue date. The check had been subject to a stop payment order which had long since lapsed. The court held that the bank had not exercised ordinary care and the payment was not in good faith.

There is still a burden on the customer to establish what their loss is.

Lesson for me is - if I ever have to place a stop payment on a large check, I'm going to close my account and open a new one!

Contrary to type, I am with the consumer on this one. The customer did not want the check paid after six months, she did not want it paid ever. However, the law does not support her desires and banks generally limit their efforts to the law's requirements. (A bank could choose to word its stop payment orders as valid for a longer time.) Its easy to say the customer should have renewed a stop payment after six months, but, assuming she has a life, its pretty easy to understand why she didn't.

The UCC provisions regarding stop payment and stale dates were designed decades ago, when every item got a physical inspection. By design, if the stop payment had expired, the check would be stale dated and subject to return for that reason. Now, most checks do not get a physical inspection.

The drafters of the UCC work hard to keep it abreast of developments in bank procedures. To bring these two fossilized paragraphs current, the UCC would say a stop payment is permanent. Also, the UCC's reference to "stale dated" checks would be deleted. Then, the bank would be entitled to follow the customer's instructions, period. If she doesn't want the check paid, due to age or replacement, all she has to do is stop payment. On the other hand, regardless of a check's age, the bank would be entitled to pay the item. If we are hellbent on protecting somebody, let the endorser warrant that the date on the item is no more than (X time) prior...

I totally agree that the consumer's expectations are that a stop goes on forever, and most truly believe that a 6 month old check won't get paid.

I'm with Ken in his suggestion that perhaps we ought to amend the UCC to kill the stale date thing altogether, unless banks can find a way to eliminate the problem. And an "evergreen" stop order ought to be an option for consumers. Maybe a slightly higher fee would make this a viable option for banks to offer?

Another thought on stale dates -- if processing systems compared check numbers on presented checks with those of the most recent rolling 30 days (or some such group of previously processed items) and flagged for review checks outside a given tolerance, maybe we could better catch stale items. Anyone out there seen such a feature?

I have to wonder- how hard would it be for banks to reprogram their core systems to accept longer stops? I woudl think this is the most cost-effective and customer friendly solution we have. Just tell the system that once a stop is on, it stays there. If the item comes in 1 hour, 1 day, 1 month, or 1 year later- it rejects all the same.

And speaking from a "consumer" perspective, I think most people believe when a check has PHYSICALLY been returned "Payment Stopped", that's the end of the item. Most people would not think they need to renew a stop payment on a check that was already stopped.