Stop Payments on Paychecks

[pscinkle]

Hi everyone.
I have approx. 1200 employees in 20 different states.
Occasionally, an employee will say that they've lost a paycheck (let's say check #1) and will make written request that a stop-payment be issued and the check be replaced. Of course, labor laws mandate that we pay our employees promptly, and so we verify with our bank that the check has not cashed. We place the stop payment, and we reissue the check (with check #2). A couple of weeks later, that employee will terminate. Then we get a letter from a check-cashing establishment claiming that our original check (#1) was returned to them by our bank with a stop payment. They claim they are the holder in due course and want us to pay for the check plus their fees.
My checks already say "Pay to" instead of "Pay to the order of" --but according UCC, if it looks like a check, then it is automatically considered negotiable, regardless of no mention of "order of". My checks also say "Not responsible to third-parties" and they also have our phone number, so the check-cashing establishment can call PRIOR to accepting a check that has been stopped. Yet they claim that I am responsible for their loss & that my issue is with the employee that misrepresented the facts to us. But many times, the employee has terminated and I have no leverage to get my money back. It seems wrong to penalize me for replacing checks that by law I am obligated to replace.
Doesn't a holder have an obligation to VERIFY that the check is still valid before they accept it? I can't find anything in the UCC that protects employers from this situation.

[Notorial dissent]

You might try something really novel, like actually talking to your banker. He can probably explain all sorts of things, like why you aren't responsible for someone else's fraud.

You stopped the check because it was reported lost/stolen, I assume you have something in writing from the employee to that effect, if you don't, you should-ALWAYS, just as a precaution to yourself.

While it is true, that they are the holder in due course, the fact that it is a lost/stolen instrument does not give them any special rights in the matter. They got taken by your “former” employee, not you. They will try and get you to take the bite, but there is no reason you should have to. You acted in good faith. If your employee had stolen a check and forged it and you found out and stopped it, would you be liable for that check..........

However, the fact that you "former" employee committed fraud on the check cashing place is not your responsibility or problem, and they can’t make it yours. Tell them so sad, too bad, contact their local DA and file check fraud charges against the negotiator. It may also not have been your employee that cashed the check, ever consider that?

[pscinkle]

Yes, I did speak with my banker, and he says I'm not responsible. However, he can't point to anything in the UCC or elsewhere that states that. I would like to respond to these letters by quoting, like they do, from codes or laws.

We do require that all stop payment requests be in writing, and the employee accepts full responsibility, etc. etc.

There position is that as a holder, they acted in good faith, and therefore are entitled to be paid by the maker of the check (me) and that my employee created fraud when they signed that the check was lost, and that I should seek restitution from my former employee.

According to the UCC, if someone steals checks or forges my signature, then those are not considered negotiable items... so the case would be moot.
However, in my case, the item was not stolen and there was no forgery. I did issue the original check, so this is where I am stuck... you see?

We do compare signatures on the endorsement and they do apparent to be signed by our former employees... otherwise, that too would fall under forgery and the item would not be negotiable.

This is a bit tricky... but there's gotta be something somewhere that says a holder has an obligation to do their due diligence and verify that the item is in fact valid.

I really appreciate your help... Thank you!!

[Notorial dissent]

It is still fraud, by the employee, and not you, therefore their only recourse is against the negotiator, not you.

There is no difference than if the amount on the check had been raised and they cashed it, it is still fraud.

I don't have access to my books at the moment, but I will see if I can find the reference you need.

[Shoonra]

These check cashing outfits charge the earth for their services, partly as a fund against such frauds. But if a check has fallen into the wrong hands, and a stop has already been placed on it, it's the check casher's problem, not yours.

Presumably the check casher has some sort of identification notes and a security camera, so it's up to him to take his evidence to the authorities.

I suggest that you get the company's lawyer (if need be, hire a lawyer for the occasion) to work up a boiler plate letter which you will xerox and mail out to every such check casher complaint, which says essentially, this check was stolen, you didn't take the necessary precautions, it's not my problem.

[pscinkle]

Hi guys. I've received a few emails regarding my question... and everyone agrees that it is wrong. But noone seems to be able to point somewhere that specifically states that. Some have referred me to lawyers. But believe me, I have, and they don't seem to know either. One lawyer told me it was true. I even went on www.bankersthread.com and they say the maker is liable to a holder (obviously) unless I can prove that they were not a holder because they weren't acting in good faith when they didn't verify the validity of item with the maker. However, that is subject... and would cost more to defend than value of the check.
A holder acting in good faith is required to visually inspect the item for signs of forgery, etc. Doesn't my "NOT RESPONSIBLE TO THIRD PARTIES" put a future holder on notice that the item might be invalid? Is there a better way to word this? Like WARNING: HOLDERS MUST VERIFY VALIDITY WITH MAKER. (?)

[ezrhythm]

Link above does not work.

[charlesa6]

Yeah, the link is broken.

[pscinkle]

sorry! it's www.bankersonline.com and from there you click on "banker's threads"....