|
 |
Home >> Checks/Money Orders >> Checks You Wrote
Check cashed, then we stopped payment: Who pays?
We wrote a check and paid in advance for landscaping services provided to our construction company on Friday, 04/10/09. The owner of this landscaping company took the check to a check cashing service. They called the office and asked if the check was legitimate; did we write it; we said yes, so they cashed it. The following Monday and Tuesday we could not locate the owner of the landscaping company and he has never finished the job. On Wednesday, we stopped payment on the check, which had not cleared our bank yet. The check cashing service is now taking us to small claims court and we have to provide a written response today. My question is where does the responsibility lie as far as the banking rules and legalities? Do we have any laws to stand on as far as the cashing service covering their decision to give this guy cash? I understand they called us, but all we verified was that we had in fact written the check. Where do we go from here? The check was for $1800.
|
Untitled
|
 Your stop payment is strictly an instruction to your bank not to pay the check, but it does not affect the rights of third parties to collect money they have advanced in reliance on the check, as the check cashing service did. In fact, the check cashing service did more than required in this case -- it called you to verify the authenticity of the check and you confirmed it.
If you had made the decision to stop payment on the check prior to being contacted by the check cashing service, and told them that you were stopping payment, the check cashing service would probably not have recourse to you. However, because it had no knowledge that there was anything wrong, the check cashing service, when it took the check and gave value for it, became a holder in due course under the Uniform Commercial Code. In that status, the check cashing company has the right to enforce the check against you in order to recover its funds.
You have a legitimate contract dispute with the landscaping company, and that's where you have to look to recover your funds. In this case (and you should consult with counsel to verify this statement), your stop payment may have served only to add to your costs and difficulties. If you had not issued the check in the first place you would have some bargaining power with the landscapers. As it stands now, you have an $1,800 payment due to the check cashing company, and you have no bargaining power with them. Stopping payment on a check does not insulate the check's drawer from liability on the check if the check is transferred to an innocent third party (including a check cashing company or another bank) before it is presented for payment.
Published on BankingQuestions.com 6/04/09
|
| |
|
Accounts
Article
Q&A
Podcast
Video
Blog
Discussions
PDF
Powerpoint
