Court Opinion

ID: 7841627
Source: CourtListenerOpinion
Date Created: 2022-09-08 17:01:53.646063+00
Date Added: 2024-06-11T16:14:11.207178
License: Public Domain

Shea, J., with whom Glass, J.,
joins, dissenting. In this case it is undisputed that the drawer, Cohn Precious Metals, Inc. (Cohn), complied fully with General Statutes § 42a-4-403 (1) in stopping payment on the checks it had delivered to Lamphere Coin, Inc. (Lamphere), on November 10, 1978, while unaware of the overpayment of $19,606.86 on November 9, 1978. It is also clear that, but for the negligence of the bank in paying the $12,175 check contrary to the stop payment order, Cohn could have offset its overpayment of the previous day against the value of the coins received from Lamphere on November 10,1978. Thus, as the trial court concluded, the plaintiff trustee, on behalf of Cohn, sustained his “burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a binding stop payment order” by the defendant bank, as § 42a-4-403 (3) requires.1
The majority opinion does not challenge, as unsupported by the evidence, the trial court’s factual finding that Cohn suffered a loss resulting from the bank’s negligent payment of the $12,175 check to Lamphere, but rejects this straightforward “but for” causation analysis in favor of a narrower view of the “resulting from the payment” provision of § 42a-4-403 (3). The majority would restrict a bank’s liability for paying a check contrary to a stop order to losses arising from *217the transaction in which the check was issued, such as a failure of consideration. I disagree, because there is nothing in the text of § 42a-4-403 (3) or its history to support such an unjustifiable curtailment of the right of the drawer recognized by § 42a-4-403 (3) to stop payment on a check for any reason, so long as the order is given to the bank in a timely and reasonable manner, as in this case. The right, of course, would be illusory without recourse against the negligent bank.
“The right to stop payment is an established right that was recognized prior to the Code. The right is absolute.” J. Reitman et al., 6 Banking Law § 133.02. “If the drawer has a good defense on a check against a payee or holder, then the drawer suffers a loss when the bank wrongfully pays the check over a stop payment order.” Id. The plaintiff trustee had the burden of proving that Cohn’s loss resulted from noncompliance with the stop payment order, just as any negligence victim must prove causation. Even if the standard of causation applicable to breaches of contract should govern reasonable foreseeability of the damages at the time the drawer and bank enter into this relationship; Neiditz v. Morton S. Fine & Associates, Inc., 199 Conn. 683, 689 n.3, 508 A.2d 438 (1986); 3 Restatement (Second), Contracts § 351 (1); it is evident that a bank must be deemed to foresee that its payment of a check over a valid stop payment order is likely to cause a loss to the drawer in the amount of the payment. There is nothing in § 42a-4-403 (3) that warrants a narrower approach to the issue of causation than that applicable to breaches of contract. In order to prevail against a bank that has ignored a stop payment order, “[t]he customer must show that (i) the account was debited, (ii) some other loss was suffered, if applicable, and (iii) bank’s noncompliance with the stop order was the ‘but for’ cause.” W. Hillman, Basic UCC Skills *2181989, Article 3 and Article 4, p. 319. As the trial court found, those criteria were satisfied by the plaintiff trustee in this case.
In adopting its constricted view of the “loss resulting from the payment of an item contrary to a binding stop payment order” provision of § 42a-4-403 (3), the majority cites a plethora of authorities, none of which address the issue of whether a bank is excused from liability for failing to obey a stop payment order simply because the drawer had no defense arising out of the transaction in which the check was issued but only a right of setoff from another transaction. Most of the cases cited involve the principle that, when a bank has paid a check on which payment has been stopped, it becomes subrogated to the rights of the payee on the check. The quotation relied upon from E. Peters, A Negotiable Instruments Primer (1974) p. 79, it “is implicit in § 4-403 (3) that if a check was issued for good consideration . . . failure to observe a stop payment order does no more than to accelerate the drawer’s inevitable liability,” is also based on the right of the bank to assert the rights of the payee on the check as a defense to an action by the drawer. Such a defense would not have been effective in this case, however, because the drawer, Cohn, had no such “inevitable liability,” given its right to set off the previous overpayment to Lamphere against the bank’s claim as subrogee of Lamphere’s rights on the check.
Two of the commentators relied upon by the majority refer to the situation in which a bank has wrongfully debited a customer’s account after a stop payment order and this action has resulted in dishonoring for insufficient funds subsequent checks issued by the drawer with the consequence of impairing his credit. E. Peters, supra; 1 J. White & R. Summers, Uniform *219Commercial Code (3d Ed. 1988) p. 912. Although they disagree as to how this problem should be resolved under § 42a-4-403 (3), they implicitly recognize that the bank’s liability for failing to obey a stop payment order may well subject it to liability with respect to other transactions resulting in damages to a drawer that have been caused by the bank’s oversight. The narrow concept of causation adopted by the majority cannot be reconciled with the views of these commentators.
The majority stresses the difference between the “resulting from” causation language of § 42a-4-403 (3) and the more elaborate provision of General Statutes § 42a-4-402 that expressly makes the bank liable for consequential damages for wrongfully dishonoring a check, including such damages as may result from the arrest or prosecution of the customer. Such a provision in § 42a-4-402 is probably necessary if liability for such damages is to be imposed because of the contract law limitation of damages to those that are reasonably foreseeable at the time of the contract. 3 Restatement (Second), Contracts § 351 (1). Such a provision in § 42a-4-403 (3) is unnecessary to make a bank liable for the amount of a check it has paid after a stop payment order, however, because it is obvious that such a loss to the drawer from the bank’s oversight is readily foreseeable.
As the majority acknowledges in a footnote, the official commentary in § 42a-4-403 takes the position “that stopping payment is a service which depositors expect and are entitled to receive from banks notwithstanding its difficulty, inconvenience and expense” and that “[t]he inevitable occasional losses through failure to stop should be borne by the banks as a cost of the business of banking.” The view of the majority that a drawer should be made to bear a loss that would have been avoided but for the bank’s neglect, because it did *220not arise from the transaction in which the check was issued, places a substantial restriction on the right to stop payment that § 42a-4-403 (1) purports to give.
With respect to General Statutes § 42a-4-407 and the defendant’s claim to be a holder in due course, there is nothing in the record to indicate that the collecting bank ever allowed the payee to draw on the check after it was deposited. Since there is no proof that the collecting bank gave value, the defendant’s claim to be subrogated to the status of a holder in due course is without foundation.
Accordingly, I dissent.

 On the basis of the facts before us, the trial court’s award of $12,175 damages may have been excessive. The amount of the overpayment of November 9,1978, was $19,606.86. The value of the silver dollars received by Cohn on November 10,1978 was $21,175. Before the two checks totaling $21,175 were issued for this purchase, Cohn owed Lamphere $1568.14. That debt was discharged by the bank’s erroneous payment of the $12,175 check. Thus Cohn received good consideration of $1568.14 as a result of the bank’s payment and its loss is limited to the balance of the amount paid on the $12,175 check, $10,606.86.
The defendant bank has not challenged the amount of the award and, since it has fully prevailed on appeal, it is unnecessary to consider the issue further.