Full question:
A payroll service called about a check they cashed after a stop payment was issued because the check cashier claimed he did not receive it so we issued a replacement check for the same amount, but he cashed it anyway and the new check is not stale yet. Is the service in NY really an innocent holder in due course?
- Category: Debts and Credit
- Date:
- State: New York
Answer:
In New York, a holder in due course is defined as someone who takes an instrument (like a check) under certain conditions: they must take it for value, in good faith, and without notice that it is overdue or has been dishonored (N.Y. U.C.C. § 3-302).
Good faith means honesty in the conduct of the transaction. Notice is defined as information that is brought to the attention of the individual handling the transaction. An organization must exercise reasonable diligence in communicating significant information to its employees (N.Y. U.C.C. § 3-304).
If the payroll service cashed the check without knowledge of any claims or defenses against it, they may qualify as a holder in due course. However, if they had knowledge of the stop payment or the circumstances surrounding the original check, they may not have this protection. A holder in due course takes the instrument free from all claims and defenses, except in specific situations (N.Y. U.C.C. § 3-305).
Ultimately, whether the payroll service is an innocent holder in due course depends on their knowledge of the situation surrounding the check.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.