Bank wrongfully refused to pay cashier’s check

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Appellant-plaintiff South Central Bank of Daviess County (South Central) appeals the trial court’s order denying South Central’s motion for partial summary judgment and granting appellee-defendant Lynnville National Bank’s (Lynnville) motion for summary judgment on South Central’s complaint against Lynnville. Specifically, South Central alleges that the trial court erred by concluding that Lynnville was entitled to refuse to pay a cashier’s check that it had issued.

This appeal presents an issue of first impression in Indiana, namely, under what circumstances—if any—an issuing bank may properly refuse to pay a cashier’s check.

Conclusion (slip op. at 18-19):  In sum, we hold that (1) Lynnville wrongfully refused to pay the cashier’s check; (2) South Central was a holder in due course of that check, meaning that Lynnville’s defenses are extremely limited; (3) none of the applicable defenses are available to Lynnville; and (4) South Central did not fail to mitigate its damages. Therefore, we reverse and remand with instructions to enter final judgment in South Central’s favor in the amount of the original cashier’s check plus expenses, interest, and consequential damages, if any, to be determined by the trial court.

Key Analysis (slip op. at 11, 14):  Only under certain, very specific circumstances is a bank entitled to stop payment on a cashier’s check: first, if the bank suspends payments—becomes insolvent; second, if the bank has its own defense—as distinguished from its customer’s defense—against the person entitled to enforce the instrument; third, if the bank has a reasonable doubt about the identity of the person demanding payment; and finally, if the payment is prohibited by law . . . Lynnville’s obligation to pay was clear and it was able to pay, but it refused payment on the check as an accommodation to the Fishers, wh had no right to make that request . . . Between the limitations of Ind. Code Sections 26-1-3.1-411 and 26-1-3.1-305, it could not be clearer that Lynnville was not entitled to stop payment on the cashier’s check.

About Bose McKinney & Evans LLP

Bose McKinney & Evans LLP is a business law firm, headquartered in Indianapolis, Indiana, serving both publicly held and privately held businesses, governmental entities and high-growth industries. Our clients include Fortune 100 companies, international manufacturers, national and regional financial institutions, agribusinesses, sports teams, university-incubated start-ups, media, utilities, cities and schools, to name a few. We strive to build strong relationships with our clients as key business advisors, to exceed expectations in the quality of our work, to be knowledgeable about our clients’ businesses and sectors, to be responsive to service needs and to continually seek to improve the delivery of client services. Our ultimate focus is on our clients.
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