B. Payment over a stop payment order
1. A bank must be given reasonable time for a stop payment order
CASE BRIEF: Aliaga Medical Center, S.C. v. Harris Bank N.A.
21 N.E. 3d 1203 (Ill. App. 2014)
FACTS: Aliaga Medical Center first opened a business checking account with Harris Bank in December
2003. Upon opening the account, Aliaga acknowledged that it received the “Harris Bank Handbook
for Personal and Business Deposit Accounts.” The first page of the handbook included the
statement that the customer “agree[s] to the terms of this Agreement when [Aliaga] sign[s] [Harris
Bank’s] account opening form or signature card, make[s] deposits or withdrawals, or leave[s] funds
on deposit.”
The handbook also required that if Aliaga wanted to stop payment on a check it had written, the
following requirements would apply:
“If you do not want us to pay a check you have written, you can order us to stop payment.
Your stop payment order must include your account number, the number and date of the
check, the name of the payee, and the amount. We must receive your stop payment order
before our stop payment cut-off time, which is 10 a.m. Central Time (C.T.) on the next
Business Day after the check is presented to us for payment. We will accept a stop
payment order from any account owner regardless of who signed the check. Your stop
payment order will be effective for six months. If you want the stop payment order to
continue after six months, you must renew it.”
Under the agreement, Harris Bank specifically “reserve[d] [its] right to pay * * * a stale check.”
The agreement contained a number of other relevant notification provisions, including notice
provisions that required customers to notify the Bank of any issues or problems with its account
within 60 days of receiving a statement and that suit must be filed within one year of receiving the
statement.
On July 10, 2010, Dr. Federico Aliaga, the plaintiff’s president, issued a check in the amount of
$50,000 (the check), payable to his wife, whom he was divorcing. The face of the check included
the statement “void after 90 days” immediately above the signature line. Harris Bank honored the
check on December 30, 2010. Aliaga never placed a stop payment order on the check, and, in fact,
never communicated with Harris about the check anytime between July 10, 2010, and December
30, 2010.
In January 2011, Harris Bank sent and made available to Aliaga its December 2010 checking
account statement, which showed that Harris Bank had honored the check on December 30, 2010.
Aliaga, however, did not notify Harris Bank of the improper check payment within the 60–day
notification period delineated in the parties’ agreement. Additionally, Aliaga did not initiate this
lawsuit within one year of the date Harris Bank sent or made available the December 2010
statement. Instead, Aliaga waited until October or November 2012, nearly two years after the
December 2010 statement was made available, before disputing the check with Harris.
Harris moved to dismiss the complaint. The trial court granted the motion, and Aliaga appealed.
ISSUE: What effect does a “VOID AFTER 90 DAYS” provision on a check have? Is it a stop-payment
order?
HOLDING AND
REASONING: Harris had the right to pay the check despite the “void after 90 days” language because Aliaga
Aliaga claims that under a UCC provision (810 ILCS 5/4-403(a) (West 2012)), it was only required
to stop payment “in a time and manner that gives the bank a reasonable opportunity to comply” and
Furthermore, even if Aliaga is correct that the stop payment provision of the agreement was neither
Aliaga also failed to comply with its obligation to timely notify Harris Bank of the alleged
Aliaga admitted that it did not comply with these terms of the agreement by providing timely notice
to Harris Bank within 60 days of the date that it sent, or otherwise made available to Aliaga, the
Finally, Aliaga failed to timely commence this lawsuit within one year from the date that Harris Bank
Affirmed.
C. Payment on forged signature of drawer
1. Drawer’s negligence in allowing it limits bank’s liability
2. Point out that it is the bank’s responsibility to verify the signature of the drawer on a check with the
signature card at the bank. If the signature is a forgery, the bank dishonors the instrument. A holder can
then proceed against prior indorsers for breach of the warranty that the signatures on the instrument are
Ask your students how to solve this problem:
D goes to a local store and writes a check for $800 for a videocassette recorder. The check is
deposited in the Merchant’s Bank, goes through the banking system, and is ultimately paid by
the drawee bank and returned to D. D returns the check to the drawee bank, saying that the
signature is a forgery, and demands that the $800 be placed back in his account. D claims that
his wallet containing the check had been stolen and ultimately returned. D also very cleverly
DISCUSSION POINTS: Thinking Things Through
The Business Law Professor with the Lost Cashier’s Check
In this sad tale of attempting to pay off debt, there were a number of people involved who did not know or
understand the law:
1. You can stop payment on a cashier’s check IF it has been lost. However, the bank will not issue a new check or
2. However, Professor Jennings was the one person without fault in the whole series of unfortunate event. For
3. The lender did not act prudently – sending a $37,000 cashier’s check back through the mail – not a prudent
business practice and the employee should have called and notified Professor Jennings of the problem. The
4. The actual outcome was that Professor Jennings had the bank stop payment on the cashier’s check, but
everything was put on hold for 90 days. The lender agreed to accept as payment the balance that was due at
the time the check was sent for the pay-off and that no further interest would be due for the 90 days. The lender
D. Payment on forged or missing indorsement
E. Alteration of check
1. The drawer’s negligence may bar a claim of alteration
2. Students know that a holder in due course can enforce the check as it was originally written. If,
however, the bank paid the altered check, the drawer may be liable for the full amount of the check if
the drawer’s negligence substantially contributed to the alteration, and the payment was made by the
F. Unauthorized collection of check – the bank may be liable
G. Time limitations
1. Non-code statute of limitations – statutory time for conversion actions
2. Forgery and alteration reporting time – reasonable time from receiving canceled checks or statement of
3. Unauthorized signature or alteration by same wrongdoer
CASE BRIEF: Burns v. Neiman Marcus Group, Inc.
93 Cal. Rptr. 3d 130 (Cal. App. 2009)
FACTS: Carol Young was employed as Brian P. Burns’s secretary at a salary that never exceeded $75,000.
Between 1995 and 2000, Young opened several credit card accounts with Neiman Marcus. In the
three-year period prior to 2006, Young spent approximately $1 million at Neiman Marcus, and “the
balance on [one] credit card, as of January 10, 2006, was in excess of $242,000.” Young was
offered entrée into Neiman Marcus’s exclusive INCIRCLE® rewards program – a loyalty incentive
program offered only to Neiman Marcus’s most frequent and highest-spending customers. Young
was also provided a designated sales associate, or a personal shopper, whose compensation was
tied to the volume and price of the merchandise purchased by her clients. Young’s personal
shopper knew of her annual salary of less than $75,000. However, the personal shopper repeatedly
contacted and encouraged Young to make excessive purchases with her various Neiman Marcus
cards.
Young would personally deliver on a regular basis fraudulent and forged checks drawn on Burns’s
Union Bank of California checking account to pay down her various [Neiman Marcus] credit card
bills at the Customer Service Center in Neiman’s San Francisco store. Young used three different
methods for presenting Burns’s checks: (a) stealing checks and forging Burns’s signature; (b)
stealing checks with no signature whatsoever; and (c) stealing checks with Burns’s signature,
checks that Burns presumed were for payments towards his own Neiman Marcus credit card
account, but which were diverted to Young’s credit card accounts.
Because Young managed all of Burns’s accounts, the reconciliations she made had fake ledger
entries for payment to third parties to cover those payments to Neiman Marcus for her own
accounts. Burns did not detect Young’s activities for three years because he did not see the bank
statements, only Young did. A serendipitous examination of the ledger and canceled checks
resulted in the discovery. Burns recovered what he could from his bank, an amount limited by UCC
Article 4. Burns filed suit against Neiman Marcus, seeking to recover the funds paid on the checks
and claiming that Neiman Marcus was subject to the defenses of forgery and unauthorized
payments. The trial court granted Neiman Marcus’s motion for demurrer and Burns appealed.
ISSUE: Can a third party who has received forged or unauthorized signatures be liable to the account
holder?
REASONING: The court was unwilling to impose a broad duty on third parties to verify that every third-party check
it receives is legitimate. Such a requirement would significantly slow down the flow and use of
negotiable instruments and defeat both the purposes of Articles 3 and 4, as well as the well-defined
rules for responsibility and liability when there are drawer and drawee forgeries.
DISCUSSION POINTS: Have the students discuss whether a third party can be liable for forged or unauthorized
checks using the Burns v. Neiman Marcus Group, Inc. case.
4. Time limitations
III. What are Consumers’ Rights in Fund Transfers?
A. Electronic Fund Transfers Act
B. Kinds of electronic fund transfer systems
1. Automated teller machine (ATM)
2. Pay-by-phone system
C. Consumer liability
Consumers are liable for failure to notify the bank of unauthorized use. Notification within two days after
IV. What are the Rights and Liabilities of Parties on Fund Transfers?
A. What law governs
B. Characteristics of funds transfers
C. Pattern of funds transfer
1. Transfer from account to account
D. Scope of UCC Article 4A – exceptions to UCC Article 4A
1. EFTA and consumer transactions
E. Definitions
1. Funds transfer – communication of instructions or requests to pay a specific sum of money
5. Payment order – direction for transfer given by originator
a. Acceptance of payment order – following instructions
F. Manner of transmitting payment order
1. No specific requirements
G. Regulation by agreement and funds transfer system rule
1. Choice of law – party autonomy
2. Clearinghouse rules
3. Acceptance of payment order
H. Reimbursement of bank
I. Error in funds transfer
1. Kind of error
a. Wrong beneficiary or account number – bank is liable
b. Excessive amount – bank is liable
2. Effect of error – may be additional liability under a collateral agreement
J. Liability for loss
ANSWERS TO QUESTIONS AND CASE PROBLEMS
1. Cashier’s checks; bank dishonors; wrongful withdrawal. First, Chase was entirely within its rights – and indeed
its obligations – when it complied with Direct Lending’s order to stop payment. Chase was both the payor bank
and the depository bank for these checks. See M.C.L. § 440.4105(b), (c). Direct Lending issued the
That Chase stopped payment on the deposited checks in its capacity as the payor bank means that it did not get
paid for those checks in its capacity as the depository bank. And, that in turn, knocks the bottom out of Elias’s
claim that Chase was required to honor the cashier’s checks. A cashier’s check is a negotiable instrument. See
2. Consumer liability. Helen would pay $50. A consumer who notifies the bank within two days after learning of a
3. Overdrafts; notice of dishonor; notification. The bank’s failure to call the customer when he had bounced a check,
when agreement between bank and customer did not contain a term requiring bank to call customer when his
account was overdrawn, did not constitute a breach of the parties’ contract under Minnesota law. While the
4. Bank liability; indorsements. The bank was held to be negligent because Mrs. Odgers had indorsed the check to
5. Time limitations. No. A depositor must notify the bank of a forged signature within one year from the time the
6. Stop payments. There are two classes of checks. There are ordinary personal checks on which the drawee is
not liable until they are accepted or paid. Cashier’s checks, certified checks, and bank drafts are different; these
The UCC provides a special role for certified checks, but it does not accord cashier’s checks a similar status; a
cashier’s check is nothing more than a negotiable instrument issued by a bank. The bank, as the drawer and
7. Alteration by same wrongdoer. Gloria must bear the loss. She did not discover and report the forgery on the
Authors’ Comment: The bank would be liable for the loss sustained on the December check. The bank is
8. Liability to holder for stopping payment. Yes. A stop payment order in some cases makes the depositor liable to
the holder of the check. A depositor is liable for stopping payment to any holder in due course unless payment
9. Forgery; reviewing bank statements. The appellate court found that neither the Vowells nor the bank were
negligent in their behavior. However, the court noted that with the Vowells’ agreement with the bank and the time
limitations in the UCC, they could not recover for those items for which they could have prevented, had they
10. Effect of certification of check at the request of the holder. Judgment was for the corporation. When a check is
certified at the request of the holder, all other parties are discharged from liability, and the bank becomes
11. Stop payment orders. A stop payment order requires certain information and the bank had warned Rovell’s staff
12. Payment after depositor’s death. Yes. The bank may continue to pay checks for ten days after the death of the
drawer, even though it has notice of the death. This is true unless the bank is ordered to stop payment by a
13. Bank payment of stale check. Mellon Bank acted in good faith when, without consulting customer, it honored a
check that was presented for payment 19 months after it was issued and after the expiration of an oral stop
payment order. Section 4-404 provides that a bank can charge its customer’s account for a check presented
14. Dishonor of check. Judgment was for the bank. When a bank has not certified a check, the payee cannot collect
from the bank when it refuses to pay the check when presented to it. The check does not operate as an
management system for classroom use.