Advanced Alloy’s account. Can Advanced Alloys recover the payment made on the check? Why or why not?

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Advanced Alloy’s account. Can Advanced Alloys recover the payment made on the check? Why or why not?

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Advanced Alloys, Inc., issued a check in the amount of $2,500 to Sergeant Steel Corporation. The check was presented for payment fourteen months later to the Chase Manhattan Bank, which made payment on the check and charged Advanced Alloy’s account. Can Advanced Alloys recover the payment made on the check? Why or why not?

Explanation & AnswerSolution by a verified expert

Explanation

Evidence supporting that Company AA cannot recover payment made on check:

In this case, Company AA has issued the check without any stop payment order, wherein the issuer gives notation to the bank to stop the payment on check after a certain period. But in this case, there is no such specification given to bank. So, in good faith, the bank can make payment on the check and charge the issuer's account. Good faith means that the transaction is done honestly. Bank M has acted in good faith since it has no idea that Customer AA is not going to allow the payment for the issued check after 14 months. So, the bank cannot be considered liable to compensate Company AA.

 
Evidence supporting that Company AA can recover payment made on check:

As the check was issued 14 months before its presentment for payment, the bank should have asked Company AA before making payment, if the company actually want to make payment for the check now or if the check should be considered void. If Company AA has allowed to pay, the bank should have then made payment against Company AA account. If not, then the check should have been considered void and no payment should have been made. So, the bank can be considered liable for charging Company AA's account without permission. The bank may need to compensate Company AA.

Sample Response

The two possible cases here can be:

Company AA cannot recover the payment made on check.
Company AA can recover the payment made on check.

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