For the "There is Justice" crowd:

You'd see a little different result if the employer had told the employee he'd have to wait a couple of days for a replacement check. Obviously, if the check is paid, the employee is challenged on his claim of loss. Employee backs down, everybody's good.

If the employee insists there had truly been a loss of the check and the indorsement to the check casher had been a forgery, once the check is paid, the employer has control. If the employee signs a forgery affidavit, the check casher ends up holding the bag under his transfer warranty. He gets to chase the person who cashed the check with him, whether it's the real payee or a thief. Everyone's good, except the check casher.

If the employee refuses to sign an affidavit of forgery, employer refuses to replace the check. Once again, everyone's good.

I have not read this entire post again, but is there any chance that the check was indeed lost and the check casher cashed the check for the person who stole it? Or was that refuted in an earlier post and I need to delete this post?

That would make an interesting wrinkle in the case, but, alas, it appears the only villain here is the former (thankfully) employee.

I just wanted to clarify that you are saying I SHOULD contact the DA because it WILL help my case, right?

The following is posted on the web, in the form of a legal brief - it's a settled issue when a check cashing store is involved.

You Stopped the Check - It Got Cashed...
You're Safe, Right?

You issue a paycheck to your employee. A week later he reports that he lost it and would like you to issue another. You want to keep your employee happy so you order your bank not to pay the first check and you issue a replacement to the employee. He is very grateful, and cashes the second check. Six weeks later you get a call from a check cashing store saying that it cashed the first check, payment was refused by your bank, and it demands that you make good on the check. Your employee no longer works for you and cannot be located. Do you have to pay the check again? It is quite possible that you do.

Your stop payment order is an agreement between you and your bank. In this case your bank did exactly what you told it to do, and did not honor the first check. Thus there is no way to hold your bank responsible for the fact that a check cashing store honored that check. Your bank did cash the second check, but again it did exactly what you ordered and incurred no liability through that action.

If the check cashing store can show that it qualifies as a "holder in due course" under the Uniform Commercial Code, then it is entitled to be paid by you. To do that the check cashing store must show that it took a "negotiable instrument;" that at the time it accepted the instrument it did not bear such apparent evidence of forgery or alteration or was not otherwise so irregular or incomplete as to call its authenticity into question; and that, among other things, it took the instrument (i) for value, (ii) in good faith, and (iii) without notice that the instrument was overdue or had been dishonored, contained an unauthorized signature or had been altered.A check is generally a "negotiable instrument." If your first check was presented to the check cashing store in the same condition as when you issued it, then it would not bear apparent evidence of forgery or alteration, or be irregular or incomplete. By cashing the check the store is considered to have taken it "for value." If the person cashing check presented the store with reasonable evidence of his identity and signature, such as by showing his drivers license, and if the check is not very old, then the "good faith" requirement would be satisfied. So would the other requirements listed above. The law would then consider the check cashing store a "holder in due course," that is, an innocent third party entitled to be paid. If the check really was cashed by your ex-employee with the intent of being paid twice, he would be guilty of theft and would owe you the amount of the overpayment. That is a small consolation if you cannot find him or if you consider it too much trouble to chase after him or press criminal charges.How can you protect yourself against this sort of problem? You could start by asking such employees to sign a statement certifying that they have in fact lost or misplaced your first check, that if they find that check they will return it to you, and that they agree to hold you harmless (to repay you) if you are forced to pay on both the original and the replacement check. Obviously, such a statement is useful only if you can enforce it. You could also put a relatively prominent notice on all of your checks stating that they are not valid unless presented for payment within a fixed number days (e.g. 30 days) from the date of issuance; someone cashing the check after the expiration of the stated time period would then likely be held to have had notice that the check was overdue, and would not be a "holder in due course" entitled to payment.

Not to be too repetitive, but pursuant to Article III of the UCC, a holder in due course may enforce the item against the maker notwithstanding the stop payment so long as there are no "real defenses" such as duress, infancy, incapacity, etc. In my jurisdiction, the item must also be presented within 90 days from the date of issue in order for the check casher to defeat the stop payment.

As a practical matter, we do not cash anything over 30 days.

Is this fair? The policy behind the UCC is to influence commerce. Without these protections, many people would not accept checks. Where would our economy be if checks were not accepted? When looking at all three parties (maker, payee and check casher) only the check casher is innocent. The maker put multiple checks into the stream of commerce, and the payee is a thief. What did the check casher do wrong??? The answer is: nothing. Furthermore, as check cashers we take many precautions prior to cashing a check, including a call to the maker in various circumstances. Even if we call the maker to get an OK (which is very time consuming, expecially for every check), there is still no guaranty that a stop won't be placed prior to presentment - which can take 5 to 7 days after encashment.

What should a maker do? I say wait 90 days before re-issuing (or put a time limit on the face of the check). I'm told, however, that under federal law an employer can't wait too long to pay an employee. I guess there is an inconsistency here and, ultimately, the maker will be on the hook. In short, know your employees.

Quote:

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When looking at all three parties (maker, payee and check casher) only the check casher is innocent.

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I understand what you are trying to say, but this is not true. The employer is innocent and the bank is innocent. Everyone is innocent except the employee. What you may have been trying to point out is that the check casher (and the bank), if it does its job correctly, is not a party to the transaction and should not take the loss on the transaction for negotiating a check in good faith.

Well, no. The check casher need do nothing to negotiate the item "in good faith," which is only stripped if the check casher has actual knowledge that there is a problem with the check at the time of cashing it. In other words, the check casher is "presumed innocent." I maintain that in this situation, only the check casher did nothing wrong. Under the Code, check cashers (holders in due course) are not required to call the maker first, but, rather, makers assume the risk when they flood the market place with multiple checks. Sorry if this does not sound fair, but the Code provisions clearly support public policy behind negotiable instruments.

Well, YES!

OK, what did the bank do wrong? Nothing. (Stopping the payment was not wrong.) What did the employer do wrong? Nothing. (Issuing the second check was not wrong.) You are incorrect sir or madam, there are several innocent parties who did nothing "wrong."

The issue is not about guilt or innocence when it comes to who the UCC determines would be ultimately liable between the bank, the employer, and the check casher. They were all innocent parties and the check casher and employer were innocent victims. Between the two victims, the casher and the employer, the casher wins because it was a holder in due course.

The only party who is not innocent in this scenario is the employee. However, the fact that a party is innocent does not mean that they do not have liability. The employer has liability under the UCC to the check casher and the employee has liability to the employer and the check casher.