How to use stop-payment orders

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Reference no: EM131660114

Question: How to Use Stop-Payment Orders

Monetary Costs and Risks One reason is monetary: banks usually charge between $15 and $25 for a stop-payment order, so stopping payment is not cost-effective for a check written for a small amount. Another reason is the risk attached to the issuing of a stop-payment order for any drawer-customer. The bank is entitled to take a reasonable amount of time to put your stop-payment order into effect before it has liability for improper payment. Hence, the payee or another holder may be able to cash the check despite your stop-payment order if he or she acts quickly. Indeed, you could be writing out a stop-payment order in the bank lobby while the payee or holder cashes the check in the drive-in facility outside. In addition, even if a bank pays over your proper stop-payment order, the bank will be liable to the drawer-customer only for the amount of loss the drawer suffers from the improper payment. When You Can Stop Payment Remember that, to avoid liability, a drawer must have a legal reason for issuing a stop-payment order. You cannot stop payment on a check simply because you have had a change of heart about the wisdom of your purchase. Generally, you can safely stop payment if you clearly did not get what you paid for or were fraudulently induced to make a purchase. You can also stop payment if a "cooling-off " law governs the transaction- that is, if you legally have a few days in which to change your mind about a purchase. Any wrongful stop-payment order subjects the drawer to liability to the payee or a holder, and this liability may include special damages that resulted from the order. When all is considered, it may be unwise to stop payment hastily on a check because of a minor dispute with the payee.

CHECKLIST FOR STOP-PAYMENT ORDERS

1 Compare the stop-payment fee with the disputed sum to make sure it is worthwhile to issue a stop payment order.

2 Make sure that your bank will honor your stop payment order before the payee cashes the check.

3 Make sure that you have a legal reason for issuing the stop-payment order.

Reference no: EM131660114

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