What is My Liability for Payment if a Check is Cashed Despite a Stop Order?

Full question:

I put a stop payment on a check given to a contractor to complete masonry work at my home. The 'check cashing' entity wants me to pay since they cashed the check. However, my bank honored the stop payment which was made 3 business days after I had written the check. What is my liability?

• Category: Banking laws
• Date: 04/07/2025
• State: California

Answer:

A maker of a check can issue a stop payment order to his or her bank, but a stop payment order does not release the maker from liability on a check, it just prevents the maker's bank from paying the check. Innocent third persons still have a claim against the maker if they cashed the check.

Provided that a bank has a reasonable time to act on your request, it is required to follow your instruction that the check not be paid. If the check cashing entity has no knowledge of the stop payment order, they are what the UCC calls a “holder in due course.” A holder in due course is a person or entity who takes a check for value (gives something in return – in this case cashed the check), in good faith and without notice that it has been dishonored or that there are any defenses to payment (had no knowledge of your potential claim against the mason or the stop payment order). A holder in due course can sue to collect on the check for the monies they paid out.

Any claim you may have with the contractor will likely be governed by contract law. It will be a matter of subjective determination for the court, based on all the facts and circumstances involved whether payment is due to the mason. If you wish to use the legal system to resolve your dispute, you may want to review the following general information regarding contract law and breach of contract actions:

Contracts are agreements that are legally enforceable. A contract is an agreement between two parties that creates an obligation to do or refrain from doing a particular thing. The purpose of a contract is to establish the terms of the agreement by which the parties have fixed their rights and duties. An oral contract is an agreement made with spoken words and either no writing or only partially written. An oral contract may generally be enforced the same as a written agreement. However, it is much more difficult with an oral contract to prove its existence or the terms. Oral contracts also usually have a shorter time period within which a person seeking to enforce their contract right must sue. A written contract generally provides a longer time to sue than for breach of an oral contract. Contracts are mainly governed by state statutory and common (judge-made) law and private law. Private law generally refers to the terms of the agreement between the parties, as parties have freedom to override many state law requirements regarding formalities of contracts. Each state has developed its own common law of contracts, which consists of a body of jurisprudence developed over time by trial and appellate courts on a case-by-case basis.

An unjustifiable failure to perform all or some part of a contractual duty is a breach of contract. A legal action for breach of contract arises when at least one party's performance does not live up to the terms of the contract and causes the other party to suffer economic damage or other types of measurable injury. A lawsuit for breach of contract is a civil action and the remedies awarded are designed to place the injured party in the position they would be in if not for the breach. Remedies for contractual breaches are not designed to punish the breaching party. The five basic remedies for breach of contract include the following: money damages, restitution, rescission, reformation, and specific performance. A money damage award includes a sum of money that is given as compensation for financial losses caused by a breach of contract. Parties injured by a breach are entitled to the benefit of the bargain they entered, or the net gain that would have accrued but for the breach. The type of breach governs the extent of damages that may be recovered.

Restitution is a remedy designed to restore the injured party to the position occupied prior to the formation of the contract. Parties seeking restitution may not request to be compensated for lost profits or other earnings caused by a breach. Instead, restitution aims at returning to the plaintiff any money or property given to the defendant under the contract. Plaintiffs typically seek restitution when contracts they have entered are voided by courts due to a defendant's incompetence or incapacity.

Rescission is the name for the remedy that terminates the contractual duties of both parties, while reformation is the name for the remedy that allows courts to change the substance of a contract to correct inequities that were suffered. In order to have a rescission, both parties to the contract must be placed in the position they occupied before the contract was made. Courts have held that a party may rescind a contract for fraud, incapacity, duress, undue influence, material breach in performance of a promise, or mistake, among other grounds.

Specific performance is an equitable remedy that compels one party to perform, as nearly as practicable, his or her duties specified by the contract. Specific performance is available only when money damages are inadequate to compensate the plaintiff for the breach.

Promissory estoppel is a term used in contract law that applies where, although there may not otherwise be an enforceable contract, because one party has relied on the promise of the other, it would be unfair not to enforce the agreement. Promissory estoppel arises from a promise which the promisor should reasonably expect to induce action or forebearance of a definite and substantial character on the part of the promisee and which does induce such action or forebearance in binding if injustice can be avoided only by enforcement of the promise. Detrimental reliance is a term commonly used to force another to perform their obligations under a contract, using the theory of promissory estoppel. Promissory estoppel may apply when a promise was made; reliance on the promise was reasonable or foreseeable; there was actual and reasonable reliance on the promise; the reliance was detrimental; and injustice can only be prevented by enforcing the promise. Detrimental reliance must be shown to involve reliance that is reasonable, which is a determination made on an individual case-by-case basis, taking all factors into consideration. Detrimental means that some type of harm is suffered.

Reasonable reliance is usually referred to as a theory of recovery in contract law. It was what a prudent person might believe and act upon based on something told by another. Sometimes a person acts in reliance on the promise of a profit or other benefit, only to learn that the statements or promises were either incorrect or were exaggerated. The one who acted to their detriment in reasonable reliance may recover damages for the costs of his/her actions or demand performance. Reasonable reliance connotes the use of the standard of an ordinary and average person.

Please see the following CAstatute:

3418. (a) Except as provided in subdivision (c), if the drawee of a
draft pays or accepts the draft and the drawee acted on the mistaken
belief that (1) payment of the draft had not been stopped pursuant
to Section 4403 or (2) the signature of the drawer of the draft was
authorized, the drawee may recover the amount of the draft from the
person to whom or for whose benefit payment was made or, in the case
of acceptance, may revoke the acceptance. Rights of the drawee under
this subdivision are not affected by failure of the drawee to
exercise ordinary care in paying or accepting the draft.
(b) Except as provided in subdivision (c), if an instrument has
been paid or accepted by mistake and the case is not covered by
subdivision (a), the person paying or accepting may, to the extent
permitted by the law governing mistake and restitution, (1) recover
the payment from the person to whom or for whose benefit payment was
made or (2) in the case of acceptance, may revoke the acceptance.
(c) The remedies provided by subdivision (a) or (b) may not be
asserted against a person who took the instrument in good faith and
for value or who in good faith changed position in reliance on the
payment or acceptance. This subdivision does not limit remedies
provided by Section 3417 or 4407.
(d) Notwithstanding Section 4215, if an instrument is paid or
accepted by mistake and the payor or acceptor recovers payment or
revokes acceptance under subdivision (a) or (b), the instrument is
deemed not to have been paid or accepted and is treated as
dishonored, and the person from whom payment is recovered has rights
as a person entitled to enforce the dishonored instrument.