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Legal issue regarding cashing a paycheck (1 Viewer)

Pipes

Pipes

Footballguy
Here's the scenario.  Employee says they lost a paycheck.  Look online to verify that check hasn't been cashed. Put a stop payment on the old check and issue a new one.  Employee is "let go" about a month later.  Fast forward a couple of months and our company is getting call from a collection company saying we owe them a $277 debt for a check cashed and returned at Walmart.  So after this employee was let go he "found" the check and cashed it at Walmart.  Because we put a stop payment on it our bank rightly refused to process the check so Walmart didn't get paid.  So rather than them eating the $200 and some odd dollars, because they took the risk they sent it over to collections for us to pay since our name is on the check.  At that amount it's not worth bringing in an attorney nor is it really worth spending any more time on this than I already have.  I'm just wondering what's the point of even putting a stop payment on checks (other than banks generating more fees) if this kind of crap can happen?  It just angers me that the company generating the fees off this check cashing service aren't the ones assuming the risk.

 
Can you tell them to go scratch and to sue you for it. It might not be worth it to them. I can't see how a judge finds you at fault. 

Woz, christo, oats, jtg or biggy will represent you pro bono. 

 
AcerFC said:
Can you tell them to go scratch and to sue you for it. It might not be worth it to them. I can't see how a judge finds you at fault. 

Woz, christo, oats, jtg or biggy will represent you pro bono. 
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We may end up going that route.  I'm really just irritated they can even go after us like that.

 
Pipes said:
Here's the scenario.  Employee says they lost a paycheck.  Look online to verify that check hasn't been cashed. Put a stop payment on the old check and issue a new one.  Employee is "let go" about a month later.  Fast forward a couple of months and our company is getting call from a collection company saying we owe them a $277 debt for a check cashed and returned at Walmart.  So after this employee was let go he "found" the check and cashed it at Walmart.  Because we put a stop payment on it our bank rightly refused to process the check so Walmart didn't get paid.  So rather than them eating the $200 and some odd dollars, because they took the risk they sent it over to collections for us to pay since our name is on the check.  At that amount it's not worth bringing in an attorney nor is it really worth spending any more time on this than I already have.  I'm just wondering what's the point of even putting a stop payment on checks (other than banks generating more fees) if this kind of crap can happen?  It just angers me that the company generating the fees off this check cashing service aren't the ones assuming the risk.
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Respond to the collection company in writing stating you dispute the debt, as it is not your debt.   If they do no stop trying to collect file a complaint with the BBB.   What is the name of the collection company?

 
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Pipes said:
Here's the scenario.  Employee says they lost a paycheck.  Look online to verify that check hasn't been cashed. Put a stop payment on the old check and issue a new one.  Employee is "let go" about a month later.  Fast forward a couple of months and our company is getting call from a collection company saying we owe them a $277 debt for a check cashed and returned at Walmart.  So after this employee was let go he "found" the check and cashed it at Walmart.  Because we put a stop payment on it our bank rightly refused to process the check so Walmart didn't get paid.  So rather than them eating the $200 and some odd dollars, because they took the risk they sent it over to collections for us to pay since our name is on the check.  At that amount it's not worth bringing in an attorney nor is it really worth spending any more time on this than I already have.  I'm just wondering what's the point of even putting a stop payment on checks (other than banks generating more fees) if this kind of crap can happen?  It just angers me that the company generating the fees off this check cashing service aren't the ones assuming the risk.
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The debt isn't yours the stop payment worked.   They are wrongfully trying to collect.   You must dispute the debt though.

 
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Legally, Walmart is a "Holder In Due Course" of the check and the Uniform Commercial Code says it is entitled to be paid.  IF you tell them to pound salt, they may or may not file a lawsuit to pursue payment (since the amount is so low), but if they do, you'll be liable.  Your remedy is to pursue the employee who wrongfully cashed the check to repay you.

 
apalmer said:
Legally, Walmart is a "Holder In Due Course" of the check and the Uniform Commercial Code says it is entitled to be paid.  IF you tell them to pound salt, they may or may not file a lawsuit to pursue payment (since the amount is so low), but if they do, you'll be liable.  Your remedy is to pursue the employee who wrongfully cashed the check to repay you.
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Why isn't the party responsible for paying the payee?  If not, a stop payment is legally meaningless. 

 
Juxtatarot said:
Why isn't the party responsible for paying the payee?  If not, a stop payment is legally meaningless. 
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Perhaps not meaningless or useless, but much less legally effective than most people realize.  Walmart could surely sue the payee as well, but presumably Pipes' company is a much better option for them to pursue.  This is the really a case of "no good deed goes unpunished." 

 
I have nothing to add to this since I am not educated on any of these matters.  I just wanted to say that it sounds like horse#### to me.  Very wrong that Pipes company is on the hook here.

 
CletiusMaximus said:
Perhaps not meaningless or useless, but much less legally effective than most people realize.  Walmart could surely sue the payee as well, but presumably Pipes' company is a much better option for them to pursue.  This is the really a case of "no good deed goes unpunished." 
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I'm sure they can sue but should they be able to win?  Wouldn't his defense of the stop payment be sufficient?

 
CletiusMaximus said:
Perhaps not meaningless or useless, but much less legally effective than most people realize.  Walmart could surely sue the payee as well, but presumably Pipes' company is a much better option for them to pursue.  This is the really a case of "no good deed goes unpunished." 
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Exactly.  Walmart is obviously assuming the amount is small enough for the OPs company just to cough it up vs fighting it, and it appears they calculated correctly.

 
Juxtatarot said:
I'm sure they can sue but should they be able to win?  Wouldn't his defense of the stop payment be sufficient?
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The Holder in Due Course doctrine makes sense if you think of it in a larger context.  A merchant or bank should be able to rely on an instrument if acting in good faith.  In the context of this case, it seems unfair and probably does have an unfair result. Perhaps Pipes' company could argue Walmart wasn't acting in good faith by cashing a paycheck from this loser, but its an uphill argument and they probably lose.  As stated, its a situation where you get punished by trusting your employee's word, issuing a second check and relying on a stop payment.

 
CletiusMaximus said:
The Holder in Due Course doctrine makes sense if you think of it in a larger context.  A merchant or bank should be able to rely on an instrument if acting in good faith.  In the context of this case, it seems unfair and probably does have an unfair result. Perhaps Pipes' company could argue Walmart wasn't acting in good faith by cashing a paycheck from this loser, but its an uphill argument and they probably lose.  As stated, its a situation where you get punished by trusting your employee's word, issuing a second check and relying on a stop payment.
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Interesting.  Thanks for the reply.

 
Had this happen several times.

We report the employee to the police for fraud and if they are still employed with us we replace them.

 
Yep our bank told us to dispute it which we will but ultimately I think we'll end up paying due to that Holder in Due Course doctrine.  This former is ultimately liable and we'll likely file against them but due to the fact this person only lasted a couple of months and pulled this crap I guess we'll be left holding the bag.  Thanks for your input everyone.

 
elbowrm said:
Can't you write it off?
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Yes we can but it's the principle of the whole matter where a check cashing place, that's not a bank, can charge a fee and not have to assume any risk.  If this check was cashed at any bank it would've been kicked bank.  We do positive pay as well so between that and the stop payment I assumed, wrongly, that we had protection from something like this.

 
FatUncleJerryBuss said:
Respond to the collection company in writing stating you dispute the debt, as it is not your debt.   If they do no stop trying to collect file a complaint with the BBB.   What is the name of the collection company?
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Thanks we will definitely take this action.  Complete Payment Recovery Services is the Collection Company.

 
Pipes said:
Yes we can but it's the principle of the whole matter where a check cashing place, that's not a bank, can charge a fee and not have to assume any risk.  If this check was cashed at any bank it would've been kicked bank.  We do positive pay as well so between that and the stop payment I assumed, wrongly, that we had protection from something like this.
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I was just making a Seinfeld joke

 
Nugget said:
Require all employees to go direct deposit. 

Or pay them in wheat pennies. 
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It is illegal to only have one method of paying out payroll for employees depending on the state you live in. In Michigan you must offer at least 2 forms of payment. 

 
Absolutely report it as fraud and ask the police for charges.

Take a look at his previous paycheck cashing. If he routinely deposited checks but in this one instance paid extra to get cash at Walmart, that should help prove intent

 
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Bull Dozier said:
Exactly.  Walmart is obviously assuming the amount is small enough for the OPs company just to cough it up vs fighting it, and it appears they calculated correctly.
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No, Walmart is assuming it's better to try to collect off the party who: (a) has no defense to the claim; and (b) is an ongoing business with resources to pay the judgment that's certain to result, than to try and collect off the party who: (a) might be able to argue that he didn't know about the stop payment and therefore did nothing wrong; and (b) is probably a deadbeat who doesn't have the assets to pay a judgment.

 
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msudaisy26 said:
It is illegal to only have one method of paying out payroll for employees depending on the state you live in. In Michigan you must offer at least 2 forms of payment. 
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Direct deposit or wheat pennies. Done 

Seriously though, the law varies by state, NC for example allows employers to require DD. 

 
FUBAR said:
Direct deposit or wheat pennies. Done 

Seriously though, the law varies by state, NC for example allows employers to require DD. 
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Yeah we can't require direct deposit but we strongly encourage it.  90% of our employees are paid via DD.

 
CletiusMaximus said:
The Holder in Due Course doctrine makes sense if you think of it in a larger context.  A merchant or bank should be able to rely on an instrument if acting in good faith.  In the context of this case, it seems unfair and probably does have an unfair result. Perhaps Pipes' company could argue Walmart wasn't acting in good faith by cashing a paycheck from this loser, but its an uphill argument and they probably lose.  As stated, its a situation where you get punished by trusting your employee's word, issuing a second check and relying on a stop payment.
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This would make way more sense if the check was made out to walmart. It wasnt.

 
parasaurolophus said:
This would make way more sense if the check was made out to walmart. It wasnt.
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Actually, it would make less sense that way.  If it was made out to Walmart, they wouldn't be a Holder in Due Course, they'd be the payee.  The payee would have a reason to know the check wasn't supposed to be cashed.  The HDIC doesn't.

 
I don't know the legality of the situation--but my gut instinct is "too bad for Walmart".   Everybody on the planet knows that there is risk involved in accepting/cashing checks.   Walmart is certainly aware of this.   Walmart is hoping that people cash their checks there and in turn purchase their goods/household needs while doing so.  People stop payment on checks all of the time, people write bad checks all of the time...etc--so Wal-mart must know and factor this into their decision when it comes to allowing themselves to cash checks in the first place.    Your only obligation was to pay the employee--and you did so--and it looks like you can prove it.   If somehow the system forces you to pay Wal-mart (an entity that you never made an agreement to have a transaction with)--I think that's very flawed.  

 
Pipes said:
Yeah we can't require direct deposit but we strongly encourage it.  90% of our employees are paid via DD.
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Another option is to print an expiration date on the face of your payroll checks, noting that the check is void X days after the issue date. If an employee claims to have lost a payroll check, wait X+5 days, then put in a stop loss and issue a second check.  Under these facts, I think you'd be protected. I'm not certain, but I don't think a merchant who cashes an expired payroll check would be a HiDC.

 
CletiusMaximus said:
The Holder in Due Course doctrine makes sense if you think of it in a larger context.  A merchant or bank should be able to rely on an instrument if acting in good faith.  In the context of this case, it seems unfair and probably does have an unfair result. Perhaps Pipes' company could argue Walmart wasn't acting in good faith by cashing a paycheck from this loser, but its an uphill argument and they probably lose.  As stated, its a situation where you get punished by trusting your employee's word, issuing a second check and relying on a stop payment.
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I am not trying to be argumentative but does this cover fraud?  Also, this is a third party that is assuming risk while taking a fee for aforementioned risk.  Don't they then assume the liability as well?  I would think the OP has a very good case to dispute the charge back due to the check casher not verifying funds and validity of the negotiable instrument.  I may be way off here but common sense tells me that Walmart is taking the risk by cashing the check therefore they also take the risk that the funds are not good. 

 
sbonomo said:
I am not trying to be argumentative but does this cover fraud?  Also, this is a third party that is assuming risk while taking a fee for aforementioned risk.  Don't they then assume the liability as well?  I would think the OP has a very good case to dispute the charge back due to the check casher not verifying funds and validity of the negotiable instrument.  I may be way off here but common sense tells me that Walmart is taking the risk by cashing the check therefore they also take the risk that the funds are not good. 
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I was wondering about the third party check risk aspect.  Most banks will charge back those funds to the depositor.  Most stores that take normal checks, won't accept a third party check.  I guess that would be my worry with entities like Wal-Mart and the ghetto cash checking places.  I assumed that the fraud risk was why they charged high fees.

 
sbonomo said:
I am not trying to be argumentative but does this cover fraud?  Also, this is a third party that is assuming risk while taking a fee for aforementioned risk.  Don't they then assume the liability as well?  I would think the OP has a very good case to dispute the charge back due to the check casher not verifying funds and validity of the negotiable instrument.  I may be way off here but common sense tells me that Walmart is taking the risk by cashing the check therefore they also take the risk that the funds are not good. 
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Vanilla Guerrilla said:
I was wondering about the third party check risk aspect.  Most banks will charge back those funds to the depositor.  Most stores that take normal checks, won't accept a third party check.  I guess that would be my worry with entities like Wal-Mart and the ghetto cash checking places.  I assumed that the fraud risk was why they charged high fees.
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Nothing the third party did was fraudulent, so why should it suffer?  Now, if Pipes can show that his employee told Walmart "I got my gullible ex-employer to issue a replacement check by telling him this one was lost.  Paying me twice will sure teach him a lesson about not firing people", then, yeah, Walmart participated in the fraud and won't have HIDC status.  But, we all know that didn't happen.  "Assumption of the risk" is a tort (i.e., personal injury) concept--if you climb on my roof to retrieve your Frisbee after I warn you that it's unstable and might collapse, you shouldn't be able to sue me when you fall through it.  The law of negotiable instruments is based on contract law where that doesn't apply.  If you hire a contractor to work on your house because he's cheaper than the competition and he makes a mess of the job, he can't claim you assumed the risk of bad work because you knew he was so much cheaper. 

There are risks that HIDC status doesn't help with, such as forgery or alteration of the check (i.e., things that are beyond the control of the issuer) which is why many stores are unwilling to cash third party checks and/or charge a fee.  But, as Cletius said above, our society/law has determined that it's important that validly issued checks be fully negotiable and accepted, because if they aren't, commerce could grind to a halt while everyone waits to make sure every check clears.  So, (sometimes unfortunately) It's up to the party who issues the check (and, therefore, who has the ability to limit their risk) to protect himself, either by not issuing replacement checks or by following the expiration date approach Cletius suggested.

 
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apalmer said:
Nothing the third party did was fraudulent, so why should it suffer?  Now, if Pipes can show that his employee told Walmart "I got my gullible ex-employer to issue a replacement check by telling him this one was lost.  Paying me twice will sure teach him a lesson about not firing people", then, yeah, Walmart participated in the fraud and won't have HIDC status.  But, we all know that didn't happen.  "Assumption of the risk" is a tort (i.e., personal injury) concept--if you climb on my roof to retrieve your Frisbee after I warn you that it's unstable and might collapse, you shouldn't be able to sue me when you fall through it.  The law of negotiable instruments is based on contract law where that doesn't apply.  If you hire a contractor to work on your house because he's cheaper than the competition and he makes a mess of the job, he can't claim you assumed the risk of bad work because you knew he was so much cheaper. 

There are risks that HIDC status doesn't help with, such as forgery or alteration of the check (i.e., things that are beyond the control of the issuer) which is why many stores are unwilling to cash third party checks and/or charge a fee.  But, as Cletius said above, our society/law has determined that it's important that validly issued checks be fully negotiable and accepted, because if they aren't, commerce could grind to a halt while everyone waits to make sure every check clears.  So, (sometimes unfortunately) It's up to the party who issues the check (and, therefore, who has the ability to limit their risk) to protect himself, either by not issuing replacement checks or by following the expiration date approach Cletius suggested.
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I'm pretty sure that commerce wouldn't grind to a halt if Walmart stopped cashing 3rd party checks. Logically (but quite possibly not legally), I would argue that by getting into the business of cashing checks made out to other people without checking with the bank that the checks are good, and charging a fee for that service, they're assuming the risk that they may pay out on some non-valid checks.

 
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