How Safe is a Money Order?

Many people think that a money order from a bank is as good as a certified check. But, in Trump Plaza Associates v. Haas, (692 A.2d 86, 1997) the Appellate Division recently decided that the certified check is much the safer instrument. A money order is much closer to a personal check than you might have thought. Here are the facts:

Trump Plaza cashed a personal money order for a customer. It then submitted the money order for payment by the bank on which it was drawn. The bank refused to honor the money order, claiming that its customer's account had insufficient funds. Trump sued, claiming that a bank may not stop payment on a money order, which it alleged to be a bank obligation. The motion judge ruled that the money order was a personal check, not a cashier's check (which would have made it an obligation of the bank) and that the bank had not "accepted" it under the provisions of the Uniform Commercial Code.

On appeal, Trump claimed that it should not suffer because of the bank's negligence in issuing the money order and that the bank "accepted" the money order by marking it "payment stopped." Trump claimed that the bank may not stop payment, thereby prejudicing the rights of a holder in due course.

The Appellate Division affirmed the motion judge's ruling, holding that a money order is more similar to an ordinary check than to a cashier's check and may be refused by the bank on which it is drawn. The Court stated that despite the common perception which equates a money order with certified and cashier's checks and therefore believes a money order to be more secure than a personal check, the bank did not sign, accept or certify the money order prior to its dishonor. The comments to the Uniform Commercial Code explicitly permit an instrument to be a check "even though it is described on its face by another term, such as a money order." Therefore, a money order is subject to a stop order just as an ordinary check is. The bank's name and logo on the instrument was not enough to constitute a signature or any other form of acceptance. The Court further held that Trump can not suffer from the bank's negligence because the bank had not accepted the instrument. The bank's stamping "payment stopped" does not constitute acceptance of the check. Trump's sole remedy is against the individual for whom it cashed the money order, and that individual is the only one to whom the bank may be liable for dishonor of the money order.