Determining the payment stopped

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Reference no: EM131458475

Royal Insurance Company Ltd. (Royal) issued a draft in the amount of $12,000 payable through the Morgan Guaranty Trust Company (Morgan Guaranty). The draft was made payable to Gary E. Terrell in settlement of a claim in an insurance policy for fire damage to premises located in Kansas City, Missouri. Subsequently, the attorney for Mr. and Mrs. Louis Wexler notified Royal that Terrell's clients had an insurable interest in the damaged property. As a result, Royal immediately stopped payment on the draft. On the same day, the draft was indorsed by Gary E. Terrell and deposited in his account at the UAW-CIO Local #31 Federal Credit Union (Credit Union). Over the next two days, Terrell withdrew $9,000 from this account. Immediately upon receiving the draft, Credit Union indorsed it and forwarded it to Morgan Guaranty for payment. The draft was returned to Credit Union with the notation "Payment Stopped." When Royal refused to pay Credit Union the amount of the draft, Credit Union sued. The basis of the lawsuit was whether Credit Union was a holder in due course. Who wins?

Reference no: EM131458475

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