Question

Amos was a housepainter and he painted Andy’s house. Andy paid Amos by check. After Amos left the house, Andy did an inspection of Amos’s work and didn’t like what he saw so he called his bank and ordered them to stop payment on the check which they did. He put nothing in writing. Three weeks later, Amos went to the bank to deposit the check and the bank paid him the money for the amount of the check. When Andy found out he was very angry at the bank. Did the bank do anything wrong in this case? Was there anything Andy should have done to protect himself? Answer in detail, telling me the basis for your answer.

Business Law

Answer 1

According to the Uniform Commercial Code , Article 4 regarding Bank deposits and its related collections,Stop payment Order can be oral and but if it is Oral then it is valid for only 14 days if not confirmed in Writing within such 14days

A Stop payment is actually valid upto a period of 6 months if made in writing.In case if it is Oral then a Written Communication to the Bank should follow the Oral Instruction within a period of 14 days to make the Stop payment effective

In this case Andy has given oral Instruction to the bank to stop payment on the check he has issued .But Andy failed to Convey /Confirm the same in Writing within 14 Days of giving oral instruction.So the order is ineffective

Amos has deposited the check three weeks later (after 14 days)approximately after 20days when Order turned ineffective and so the Bank has honoured the check without stopping the payment

The Bank has not committed an error.It has acted only according to Uniform Commercial code for Bank deposits and Collections .So Bank cannot be held in charge for the error

Andy should have drafted a written Communication to the bank clearly indicating the details of the check and party on whom it was drawn upon within 14 days(2weeks) to stop the payment on check.

The Answer is based on Article 4 -403 of Uniform Commercial Code containing Customer's right to stop payment and the liability to prove that error has occurred which resulted in losses to the Customer is the responsibility of the Customer