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Chapter 25
Banking System and Electronic Financial Transactions
VI. Answers to Critical Legal Thinking Cases
25.1 Cashier’s Check
Wood wins, because Wood’s stop-payment order should not have been effective. A cashier’s check,
which is drawn on the issuing bank itself, is a debt of the bank. The bank, which has been paid for the
check, guarantees payment of the check. When the check is presented for payment, the bank debits its
own account. Neither the purchaser nor the issuer of a cashier’s check can stop payment of the check. In
this case, Wood had paid the Bank $6,000 to issue a cashier’s check payable to Walker. The check
25.2 Overdraft
The Pulaski State Bank wins because it had the legal right to create the overdraft in Kalbe’s account.
When there are insufficient funds in a customer’s checking account to pay a check that is presented for
payment, the payor bank can either dishonor the check, or honor the check and create an overdraft in the
customer’s account. The payor bank can create the overdraft because there is an implied promise between
the customer and the bank that the customer will reimburse the bank for paying checks he or she has
written. The bank can sue the customer to recover this amount, if the customer does not subsequently
Wisconsin)
25.3 Wrongful Dishonor
City National Bank of Fort Smith (CNB) wins. The court held that punitive damages are not recoverable
in a conversion action simply because CNB intentionally exercised control or dominion over Goodwin’s
accidentally exercised dominion over the wrong Goodwin’s funds. Similarly, in order to receive
consequential damages, Goodwin must show that CNB acted in bad faith or that it deliberately or
willfully dishonored the checks. Thus, because the bank mistakenly confused the identities of the
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Court of Arkansas)
25.4 Stale Check
Ragusa wins because Community Bank is liable for the $5,000 since the bank had paid a stale check. A
check that has been outstanding for more than six months is considered stale. A bank is under no
court ordered the bank to recredit Ragusa’s account for $5,000. Charles Ragusa & Son v. Community
State Bank, 360 So.2d 231, 1978 La. App. Lexis 3435 (Court of Appeal of Louisiana)
25.5 Postdated Check
collect the amount of the check, the drawer usually suffers little or no loss when a postdated check is paid
early. In this case, the court ordered the New England Bank to recredit Siegel’s account $20,000 because
Massachusetts)
25.6 Stop Payment
Dynamite Enterprises wins the suit because Eagle National had paid after a valid stop-payment order
request. A stop-payment order is an order by a drawer of a check to the payor bank to not pay or certify a
check written against an account with insufficient funds to be irrelevant. The court stated that, “a bank
customer has a right to stop payment on an overdrawn check.” Thus, the bank was found liable for the
VII. Answer to Ethics Case
25.7 Ethics Case
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report any forged signatures to the Bank. The customer is liable if the bank suffers a loss because of the
customer’s failure to promptly examine bank statements and report forgeries. In this case, it was proven
relieve the Peoples Bank of any liability. Gennone probably acted unethically in suing the bank. This is
because he failed to examine his bank statements for three years during which time his wife was forging
