Legal Question in Banking Law in New Jersey

Re: stop payment on check

For the moment, do nothing.

The check cashing company has glossed over one important detail. Before it can become a holder in due course under 3-302, it must first be a holder. A thief or the finder of a order instrument (i.e. made other than to cash) does not have good title to the instument and cannot be a "holder." If the check cashing company took from a thief or forger, it is not a holder. So, before anyone can determine who owes what to whom, it has to be determined whether the check was lost or stolen and your employee's signature forged. If you pay the check cashing company, you run a risk that your employee may also have a claim.

I recommend that you get some writing from your employee to the effect that the check was found and cashed. Lacking this, you should at least allow for the possibility that the employee's signature is a forgery. You're in the driver's seat. You can do nothing until the situation is resolved or one or the other party takes legal action against you. If and when that happens, you can crossclaim against the other party and let the judge decide the issue. That way, you won't be out to both.

You could probably tell a lot by confronting the employee with the fact of the cashed check and see what happened.

See also: http://info.corbettlaw.net/lawguru.htm