Opinion ID: 379321
Heading Depth: 2
Heading Rank: 2

Heading: right to stop payment of the cashier's check

Text: 20 The trial court recognized the general rule that the act of issuing a cashier's check binds the issuing bank to pay the instrument and the bank is not allowed to stop payment on it. TPO, Inc. v. Federal Deposit Insurance Corp., 487 F.2d 131 (3rd Cir. 1973). In the usual case in which a bank customer purchases a cashier's check from the bank made to the order of a third party payee the cashier's check is treated as accepted in advance and it cannot be dishonored by the bank because of an indebtedness to it by one of its customers. Swiss Credit Bank v. Virginia National Bank, Fairfax, 538 F.2d 587, 588 (4th Cir. 1976). 21 Some courts have recognized an exception to this rule, however, where the payee of a cashier's check dealt directly with the bank and engaged in some fraud to obtain issuance of the check from the payor bank. In that situation the payor bank is entitled to stop payment on the check. TPO, Inc. v. Federal Deposit Insurance Corp., supra; Matter of Johnson, 552 F.2d 1072 (4th Cir. 1977). Similar holdings can be found where there has been a lack of consideration running from the payee who deals directly with the payor bank. Wilmington Trust Co. v. Delaware Auto Sales, 271 A.2d 41 (Del.1970). 22 The trial court found that Acco made fraudulent misrepresentations concerning the extent of the debt owed Acco by Slatton to induce the bank to issue the cashier's check. Acco is not therefore a holder in due course under 12A O.S. 3-302 because it did not act in good faith. Even if Acco was a holder in due course of the check, the bank is entitled to assert the defense of fraud by Acco because Acco dealt directly with the bank in obtaining the check. 12A O.S. 3-305(2). There is no challenge here to the bank's original right to apply the $29,000 check given it by Slatton against the debt Slatton owed to the bank. Therefore, the propriety of that action need not be addressed and the $29,000 will be treated as properly in the hands of the bank. No rights of third party holders in due course of the check are involved in the dispute. Under these circumstances the strong considerations of public policy favoring negotiability and reliability of cashier's checks are not present. TPO, Inc. v. Federal Deposit Insurance Corp., supra, 487 F.2d at 135. The bank can therefore assert the defense of fraud against Acco. If fraud was present, the stop order on the cashier's check was justified. 23 This reasoning is limited to situations in which a payor bank refuses to honor a cashier's check when presented by the payee who is not a holder in due course but rather is a party whose fraud induced the bank to issue the check. Thus, a finding of fraud on the part of the payee which (or who) induced the issuance of the check is necessary. The Oklahoma courts apparently have not addressed the extent of a payor bank's right to stop payment under circumstances such as these, but the above reasoning is not offensive to the general policies of the U.C.C. and would likely be adopted by the Oklahoma court. 24 The remaining question is whether the trial court committed error in finding that Acco committed fraud in obtaining the issuance of the check. Acco was entitled to priority over the bank on proceeds from the sale of group 6 hogs only to the extent Acco had not been satisfied on its feed account for group 6 hogs. Acco represented to the bank that the feed account was unsatisfied to the extent of $36,000 before obtaining the $29,000 cashier's check from the bank. This is evidenced by Acco's written statement that with the receipt of the $29,000 from the bank the balance due Acco on group 6 hog feed would be $5,000. This information was false because Acco had in fact arranged to receive or had already received $41,000 in proceeds from the sale of group 6 hogs and was not entitled to first priority in the total $29,000 proceeds because the total amount would have amounted to more than the group 6 hog feed debt which was owed. If the $41,000 was properly used to pay down that debt, Acco would have had priority in only approximately $5,000 worth of group 6 hog proceeds. The bank was entitled to the rest. Acco's fraudulent representation concerning the amount of the group 6 hog feed debt is sufficient to justify the bank's stop payment order. 1 25 The judgment is affirmed.