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Stop Payment is the Start of Big Problems
I live in PA and cashed a check from a customer for $1500, which was done at the customer's own bank. The customer's bank called me a few days later and said I would have to return the money because there was a stop payment on the check and they gave me the money in error. I refused to give it back because I provided a legitmate service for this customer. Now, the bank has sent me civil complaint through a local District Court office and they are suing me for the $1500. Can they do that legally? Also, is there any legal documentation (court opinions) that I can take with me to court to show that it was their fault, and they are basically liable for payment to me?
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 The key element is the date on which your customer actually stopped payment on the check. If the stop was received by the bank at a time which made it impossible for the bank to act on the stop when you presented the check for payment the stop payment would not be effective, and the bank should be fighting this matter out with its customer, not with you. For example, if you cashed the check at noon and the stop order was received in a phone call at 11:55, the stop may have been too late.
On the other hand, if the stop order was received in sufficient time and the bank truly did cash the check in error, the bank gets certain rights to assume the legal position of the issuer of the check, the payee of the check, or a holder of the check, in order to attempt to get its money back. The legal term is "subrogation", and it is written into the Uniform Commercial Code to prevent unjust enrichment by any of the parties at the expense of the bank. Since you have the money, and the bank has probably already reimbursed its customer for the stopped check, the bank seems to be trying to argue that it can stand in its customer's shoes to recover funds to which you weren't entitled. Your defense will probably be that you were due the funds.
These cases often get settled because they can get awfully complicated, and can, unless settled, result in a court digging into the contract, the payments, whether or not someone is in default on the contract, and stuff like that. That can get awfully expensive. If you can arrange it, it would be wise for all three parties to calmly sit down and figure out who owes what to whom, settle the matter, sign an agreement that your dispute is resolved, and move on, otherwise, no one wins except the attorneys.
Published on BankingQuestions.com 1/28/09
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