2023 New Mexico Statutes › Chapter 55 - Uniform Commercial Code › Article 4 - Bank Deposits and Collections › Part 4 - RELATIONSHIP BETWEEN PAYOR BANK AND ITS CUSTOMER › Section 55-4-403 - Customer's right to stop payment; burden of proof of loss.

(a) A customer or any person authorized to draw on an account if there is more than one person may stop payment of any item drawn on the customer's account or close the account by an order to the bank describing the item or account with reasonable certainty received at a time and in a manner that affords the bank a reasonable opportunity to act on it before any action by the bank with respect to the item described in Section 55-4-303 NMSA 1978. If the signature of more than one person is required to draw on an account, any of these persons may stop payment or close the account.
(b) A stop-payment order is effective for six months, but it lapses after fourteen calendar days if the original order was oral and was not confirmed in a record within that period. A stop-payment order may be renewed for additional six-month periods by a record given to the bank within a period during which the stop-payment order is effective.
(c) The burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a stop-payment order or order to close an account is on the customer. The loss from payment of an item contrary to a stop-payment order may include damages for dishonor of subsequent items under Section 55-4-402 NMSA 1978.
History:
1953 Comp., § 50A-4-403, enacted by Laws 1961, ch. 96, § 4-403; 1992, ch. 114, § 188; 2009, ch. 234, § 16.
OFFICIAL COMMENTS
UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
1. The position taken by this section is that stopping payment or closing an account is a service which depositors expect and are entitled to receive from banks notwithstanding its difficulty, inconvenience and expense. The inevitable occasional losses through failure to stop or close should be borne by the banks as a cost of the business of banking.
2. Subsection (a) follows the decisions holding that a payee or indorsee has no right to stop payment. This is consistent with the provision governing payment or satisfaction.
See
Section 3-602 [55-3-602 NMSA 1978]. The sole exception to this rule is found in Section 4-405 [55-4-405 NMSA 1978] on payment after notice of death, by which any person claiming an interest in the account can stop payment.
3. Payment is commonly stopped only on checks; but the right to stop payment is not limited to checks, and extends to any item payable by any bank. If the maker of a note payable at a bank is in a position analogous to that of a drawer (Section 4-106) [55-4-106 NMSA 1978] the maker may stop payment of the note. By analogy the rule extends to drawees other than banks.
4. A cashier's check or teller's check purchased by a customer whose account is debited in payment for the check is not a check drawn on the customer's account within the meaning of subsection (a); hence, a customer purchasing a cashier's check or teller's check has no right to stop payment of such a check under subsection (a). If a bank issuing a cashier's check or teller's check refuses to pay the check as an accommodation to its customer or for other reasons, its liability on the check is governed by Section 3-411 [55-3-411 NMSA 1978]. There is no right to stop payment after certification of a check or other acceptance of a draft, and this is true no matter who procures the certification.
See
Sections 3-411 and 4-303 [55-3-411 and 55-4-303 NMSA 1978]. The acceptance is the drawee's own engagement to pay, and it is not required to impair its credit by refusing payment for the convenience of the drawer.
5. Subsection (a) makes clear that if there is more than one person authorized to draw on a customer's account any one of them can stop payment of any check drawn on the account or can order the account closed. Moreover, if there is a customer, such as a corporation, that requires its checks to bear the signatures of more than one person, any of these persons may stop payment on a check. In describing the item, the customer, in the absence of a contrary agreement, must meet the standard of what information allows the bank under the technology then existing to identify the item with reasonable certainty.
6. Under Subsection (b), a stop-payment order is effective after the order, whether written or oral, is received by the bank and the bank has a reasonable opportunity to act on it. If the order is written it remains in effect for six months from that time. If the order is oral it lapses after 14 days unless there is written confirmation. If there is written confirmation within the 14-day period, the six-month period dates from the giving of the oral order. A stop-payment order may be renewed any number of times by written notice given during a six-month period while a stop order is in effect. A new stop-payment order may be given after a six-month period expires, but such a notice takes effect from the date given. When a stop-payment order expires it is as though the order had never been given, and the payor bank may pay the item in good faith under Section 4-404 [55-4-404 NMSA 1978] even though a stop-payment order had once been given.
7. A payment in violation of an effective direction to stop payment is an improper payment, even though it is made by mistake or inadvertence. Any agreement to the contrary is invalid under Section 4-103(a) [55-4-103 NMSA 1978] if in paying the item over the stop-payment order the bank has failed to exercise ordinary care. An agreement to the contrary which is imposed upon a customer as part of a standard form contract would have to be evaluated in the light of the general obligation of good faith. Sections 1-203 and 4-104(c) [55-1-203 and 55-4-104 NMSA 1978, respectively]. The drawee is, however, entitled to subrogation to prevent unjust enrichment (Section 4-407) [55-4-407 NMSA 1978]; retains common law defenses, e.g., that by conduct in recognizing the payment the customer has ratified the bank's action in paying over a stop-payment order (Section 1-103) [55-1-103 NMSA 1978]; and retains common law rights, e.g., to recover money paid under a mistake under Section 3-418 [55-3-418 NMSA 1978]. It has sometimes been said that payment cannot be stopped against a holder in due course, but the statement is inaccurate. The payment can be stopped but the drawer remains liable on the instrument to the holder in due course (Sections 3-305, 3-414) [55-3-305, 55-3-414 NMSA 1978, respectively] and the drawee, if it pays, becomes subrogated to the rights of the holder in due course against the drawer. Section 4-407 [55-4-407 NMSA 1978]. The relationship between Section 4-403 and 4-407 [55-4-403 and 55-4-407 NMSA 1978, respectively] is discussed in the Comments to Section 4-407 [55-4-407 NMSA 1978]. Any defenses available against a holder in due course remain available to the drawer, but other defenses are cut off to the same extent as if the holder were bringing the action.
ANNOTATIONS
The 2009 amendment,
effective January 1, 2010, in Subsection B, after "six-month periods by a", deleted "writing" and added "record".
The 1992 amendment,
effective July 1, 1992, rewrote this section to the extent that a detailed comparison would be impracticable.
Bank making erroneous payment over stop order can recover from drawer or payee
if the drawer has no defense to payment of the check, the bank recovers by charging the drawer's account; if the drawer has a defense, then the bank recovers as a subrogee to the drawer's right against the payee.
Swiss Credit Bank v. Balink
, 614 F.2d 1269 (10th Cir. 1980).
Bank should bear cost of litigation stemming from negligent cashing of check.
Ward v. First Nat'l Bank
, 1980-NMSC-080, 94 N.M. 701, 616 P.2d 414.
Garnishee not required to stop payment.
— Non-bank garnishee had no legal duty to stop payment on checks that were sent to payee prior to garnishee being served with writ of garnishment.
Central Sec. & Alarm Co. v. Mehler
, 1998-NMCA-096, 125 N.M. 438, 963 P.2d 515, cert. denied, 125 N.M. 322, 961 P.2d 167.
Law reviews.
— For article, "New Mexico's Uniform Commercial Code: Who Is the Beneficiary of the Stop Payment Provisions of Article 4?" see 4 Nat. Resources J. 69 (1964).
Am. Jur. 2d, A.L.R. and C.J.S. references. —
10 Am. Jur. 2d Banks §§ 641, 645, 653.
Stipulation relieving bank from or limiting its liability for disregard of stop payment order, 1 A.L.R.2d 1155.
What conduct by drawee of check before receipt of stop payment order renders order ineffectual, 10 A.L.R.2d 428.
Liability of bank for payment of check drawn by one depositor after stop payment order by joint depositor, 55 A.L.R.2d 975.
Uniform Commercial Code: bank's right to stop payment on its own uncertified check or money order, 97 A.L.R.3d 714.
Recovery by bank of money paid out to customer by mistake, 10 A.L.R.4th 524.
Banks and banking: construction and effect of U.C.C. § 4-403(2) regulating oral or written nature of stop-payment order, 29 A.L.R.4th 228.
Sufficiency of description of check in stop-payment order under UCC § 4-403, 35 A.L.R.4th 985.
9 C.J.S. Banks and Banking §§ 326, 352 et seq.