Question

RPM Pizza, Inc., issued a check for $96,000 to Systems Marketing for an advertising campaign. A few days later, RPM decided not to go through with the deal and placed a written stop-payment order on the check. RPM and Systems had no further contact for many months. Three weeks after the stop-payment order expired, however, Toby Rierson, an employee at Systems, cashed the check. Bank One Cambridge, RPM's bank, paid the check with funds from RPM's account. The amount of the check was large, and the check was more than six months old (stale). The bank should therefore have verified the signature on the check according to standard banking procedures and the bank's own policies. Bank One did not do so, however. RPM filed a suit in a federal district court against Bank One to recover the amount of the check. Using the information presented in the chapter, answer the following questions.

A. How long is a written stop-payment order effective? What else could RPM have done to prevent this check from being cashed?
B. What would happen if it turned out that RPM did not have a legitimate reason for stopping payment on the check?
C. What are a bank's obligations with respect to stale checks? Should Bank One have contacted RPM before paying the check? Why or why not?
D. Assume that Rierson's indorsement on the check was a forgery. Would a court be likely to hold

Answer 1

Finall Answer:

A. A written stop-payment order is typically effective for six months. To prevent the check from being cashed, RPM could have informed the bank to extend the stop-payment order or closed the account.

Step-by-step explanation:

A written stop-payment order on a check is a directive from the account holder to the bank, usually effective for about six months. Beyond this period, the stop-payment order expires, allowing the check to be cashed. In this scenario, RPM could have extended the stop-payment order before its expiration or opted to close the account to prevent the check from being cashed. Taking such actions would have ensured the check remained invalid, mitigating the risk of it being cashed after the expiration of the stop-payment order.

RPM's failure to take additional steps once the stop-payment order expired exposed the check to the risk of being cashed, leading to the subsequent cashing of the stale check by Toby Rierson, an employee at Systems Marketing. Preventive measures such as informing the bank to extend the stop-payment order or closing the account could have effectively averted this situation.

Therefore, the correct answer is A.