SW Legal studies in Business

Bank Not Liable for Paying Checks on Which Stop Payment Orders Had Been Placed
Description Appeals court held that under the UCC a drawee was not liable to a drawer for accidentally paying checks on which stop payment orders had been placed since the drawer was liable to the payee of the checks anyway.
Topic Negotiable Instruments and Credit
Key Words Checks; Stop Payment
C A S E   S U M M A R Y
Facts Seigel, a Maryland resident, gambled in Atlantic City, New Jersey at various casinos. He wrote checks to the casinos to get gambling chips. The checks were written against his cash management account at Merrill Lynch. When he returned home, after losing a substantial sum, he told his broker that he did not want the checks to be paid. On advice of his broker, he placed stop payment orders on the checks and liquidated the account. While Merrill Lynch did not pay many of the checks, it accidentally paid checks totaling $143,000. Seigel sued Merrill Lynch for breach of contract, negligence, and breach of trust, demanding a return of $143,000. The trial court held for Merrill Lynch, the drawee, and Seigel, the drawer, appealed.
Decision Affirmed. Under the UCC, 4-403 and 4-407, the drawer did not suffer an actual loss from the drawee's mistakenly paying checks upon which stop payment orders were placed. In assessing whether a drawer suffered a loss as a result of a drawee's mistaken payment of checks, upon which stop payment orders were placed, and which were issued to casinos to pay drawer's gambling debts, the drawee had to be treated as the subrogee of any rights of the casino payees against the drawer. Since the debts were valid and owed to the casinos, there was no actual loss for which the drawee, Merrill Lynch, could be held liable.
Citation Seiger v. Merrill Lynch, Pierce, Fenner & Smith, 745 A.2d 301 (Ct. App., D.C., 2000)

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