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Home >> Checks/Money Orders >> Checks You Wrote
Am I Liable for My Stopped Check?
I gave a check to a man for services he was to provide. It was made out to his company. My bank called the next day and said they could not cash the check because it was made out to a company and not to an individual. The person wanted to open an account at my bank in order to deposit/cash at my bank. He did not have proper ID and the bank would not open an account for him. My banker felt this person was not reputable. I called the Secretary of State's office and found that he is not licensed to practice his services in my state.
I stopped payment on the check. I was contacted about two weeks later by a company who pursues bad checks for a certain grocery chain. The man I made the check out to took the check, which would be considered a third party check, and had it cashed at the grocery store. The store says I am responsible for the money and is pursuing me for it. My banker insists that I did not make the check out to the store; therefore, I am not liable, but the company keeps contacting me for the money. Where do I stand legally on being responsible for the money?
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 It's too bad that you didn't check the individual out before you gave him the check, because you may have some fast talking to do, perhaps with a lawyer, to escape liability on the check. Your banker was at least partly mistaken. When the store cashed the check, without knowledge of the stop payment, it may have become a holder in due course, which is a status under the law that allows the holder of a check to enforce it against anyone who signed it, including the person who issued the check. At least that is the legal argument that the grocery chain will raise, and in most cases, they would be correct.
In this case, you may be able to argue that the grocery store could not become a holder in due course because it should have been plain to the store that the check was payable to a company, not to an individual. The store should have questioned the individual's authority to endorse and cash the check for the company. Whether such an argument will succeed cannot be known at this point, particularly if the company is a sole proprietorship owned by the individual, but you can offer that argument if you are contacted again by the collection agency.
In the meantime, make sure that you don't ignore any notice that's delivered to you, personally or in the mail, that you're being summonsed to court to answer a complaint. If you ignore such a notice, you risk not being able to argue your position before a court, but also the possibility you'll lose the case by default, and have to pay not only the check but also court and other fees. If the amount of money is substantial, you should consider contacting an attorney for advice and, if it comes to that, representation.
Published on BankingQuestions.com 11/14/08
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