Under New Jersey law, anyone authorized to write a check can issue a stop payment order. A stop payment order tells the bank that it should not honor a check already written and given to someone, but not yet cashed.
In New Jersey, a stop payment order is effective for six months. However, if the stop payment order was verbally conveyed to the bank, it will lapse after fourteen days unless the customer confirms the order in writing within the fourteen day period. Then the customer may extend it for another six months by submitting a written request within the first six months.
However, New Jersey law does not require check cashing companies to investigate every check for possible stop payment orders. For instance, the Superior Court of New Jersey ruled that any claim that a check cashing company failed to conduct due diligence is unlikely to succeed because it is commercially unreasonable for companies to inquire about possible stop payment orders on every single check. It is enough for the company to see that the amount is small, the person has cashed similar checks from the same source, the person shows identification, and there are sufficient funds in the account.
If there is something suspicious about the check, the law may require the check cashing company to call the bank or check-writer to ensure it is legitimate. However, without some clear sign of fraud or other suspicious circumstances (for instance if a person attempted to cash a check for a large sum of money or the names or amounts had been erased or altered) the company has no obligation to confirm the check’s validity and may proceed to cash the check.
If there is not clear fraud, a check may be cashed even after a stop payment order is properly issued. After the check cashing company cashed the check, however, the bank would refuse to pay it because of the stop payment order. However, this does not leave the check cashing company without recourse. The company may actually sue the writer of the check for payment – regardless of the stop payment order.
Check cashing companies are usually afforded the special status of “holders in due course” because they received the check for value. They buy checks from their customers, paying for the check based on their ability to obtain the same funds from the bank. As long as these companies are doing this in good faith, without any reason to believe the check has been dishonored or fraudulently made, then they become holders in due course.
A holder in due course is protected by New Jersey’s Uniform Commercial Code (“UCC”). This means the check cashing company can recover payment from the original source – the check-writer. Under these circumstances the check-writer must pay the holder in due course the amount of the check regardless of the stop payment order.
However, if the cashing service was careless in missing some forgery or other suspicious circumstances, then the check-writer would not be obligated to pay.
The attorneys at McLaughlin & Nardi are experienced with check cashing issues and New Jersey’s Uniform Commercial Code. To learn more about what we can do to help, please visit our website or contact one of our lawyers at (973) 890-0004.