Question

Henri was in the process of negotiating the purchase of a high-end laptop computer from The Computer Supply Co. As a result of a number of telephone calls to the Computer Supply Co., Henri eventually negotiated a price of $3,200 for the computer. He prepared a cheque in the amount of the purchase price and signed it. However, because he was uncertain as to the exact spelling of the company name, he left that part of the cheque blank. He placed the signed cheque in his office desk drawer with the intention of making a telephone call to the company later in the day for the information necessary to complete the cheque. Henri determined the company's correct name while at lunch, but when he returned to the office, he discovered that the cheque had been stolen. Shar, a fellow employee of Henri’s, had taken the cheque, filled in the cheque payable "to bearer," and used it to purchase items at a store where Henri frequently shopped. The store owner accepted Henri’s cheque without question, as he was familiar with his signature, and later presented it to Henri’s bank for payment. Within minutes after the bank had paid the cheque, Henri telephoned to have the bank stop payment. Advise the parties of their respective rights (if any) and liability (if any).

Answer 1

As a general rule, a bank customer (here Henri) has the right to Stop payment on a cheque before the cheque has been cashed/paid. Generally, once the cheque has been encashed by the recipient, the bank customer (Henri) won’t be able to make a stop payment with the bank.

In some cases of a certified cheque (a personal cheque of the depositor (Henri), drawn on the depositor's own account, and then signed by an authorized bank officer), stopping payment after certification is allowed in some situations. But, this is only possible when there is no third party right involved.

However, if the rights of the third party are involved, which in this case are the rights of the Store at which Shar purchased items, the bank is not liable to stop the payment once the cheque has been paid.

Thus, the Store owner will get its dues from the bank and Henri will be at a loss due to the stolen cheque.