Stopped payment on check for services not rendered

[socalmaria]

Hello,

I found this site when doing research on "holder in due course" which is what a check cashing place is claiming. I will briefly try to explain the situation.

My husband and I wrote out a check to a landscaper for work to be done in our yard. He sent one worker the next day, but the following day we kept waiting for someone to show up. In the meantime we kept trying to call him, left messages, no answer. Finally late in the day his secretary answered, I explained the situation, and she proceeded to tell me that we weren't the only ones who were unhappy and not having the job done right. She strongly suggested we stop payment on the check. So I did that very same day.

About a month later we get a notice from the check cashing place stating that they are "holder in due course" and will get a lawyer if need be if we don't pay up within 10 days. Well, based on the advice we got from our BIL who is a lawyer and our bank we ignored the letter and their one phone call. About 2 weeks (or longer) later we get another call from them so I tell my husband he better call them back. They proceed to tell him that they have tried to get the money back from the landscaper, but he won't return their calls (not surprising), so now they want the money from us because it was our check. My husband proceeds to tell them that our bank told us they could have checked with our bank to see if the check was good, but they claim that they have no legal right to do this. This doesn't make sense to me because retail stores do it all the time. Anyway, my husband tells them that we stopped payment for the same reason they can't get the money from the landscaper and because he had no intentions of finishing the work and that we aren't paying it unless they can provide us with legal documentation stating the law is on their side. Well today I received the exact same stupid letter we got 2 months ago. It again states that if we don't pay within 10 days they will get a lawyer. I'm thinking, if this is really true wouldn't they have already started legal proceedings??? I'm starting to think they are just bluffing and trying to intimidate us into paying them. Any and all advice would be appreciated! And if anyone can explain the "holder in due course" law in plain English I would also greatly appreciate it. Thank you, Maria

 

[bryan]

They are incorrect if they think they cannot call the bank to verify the check. Merchants do it all the time. I have done it before when i do work for someone and they have written me a personal check. Whether they did or did not is not really relevent in them being considered a holder in due course (I will use HDC for short).

I think the actual rights of the check cashing place may vary from state to state so it may vary where you are. It may take a little research to see what their exact rights are.

Basically a HDC would be if I went and did work for you and you wrote me a check for this work. I accepted it since i had no reason to believe it was not a good check. If it bounced (for any reason) then I would have the right to go after you for the money as a HDC..

Now it gets trickier when another party is involved. The check cashing place probably does have rights a a HDC. (Uniform Commercial Code section attached to the bottom for reference). It really depends on how the transfer is viewed. Looking at 3-302 (2)(c) below I believe this will be viewed as a creditor sale and that means the check cashing place will have HDC rights.

The real question is how much claim do they have. The check was written in consideration of services to be performed. The landscaper only has claim to a portion equal to the portion of service he provided, and not the whole amount. 3-303(2)(d). The question is does the check cashing place only have the exact same right as the landscaper then they could only claim the same portion.

Realize I am not a lawyer, this is just my interpretation of the law in this instance. A lawyer may have a clearer interpretation for you. I hope I have not muddied the water too much for you.

The check cashing place does seem to be well within their rights to sue in civil court. Without knowing the amount I cannot say if it would be small claims or not. Really the person they need to go after is the landcaper though. In their place that is who I would pursue in court.

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§ 3-302. HOLDER IN DUE COURSE.

(a) Subject to subsection (c) and Section 3-106(d), "holder in due course" means the holder of an instrument if:

(1) the instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and

(2) the holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in Section 3-306, and (vi) without notice that any party has a defense or claim in recoupment described in Section 3-305(a).

(b) Notice of discharge of a party, other than discharge in an insolvency proceeding, is not notice of a defense under subsection (a), but discharge is effective against a person who became a holder in due course with notice of the discharge. Public filing or recording of a document does not of itself constitute notice of a defense, claim in recoupment, or claim to the instrument.

(c) Except to the extent a transferor or predecessor in interest has rights as a holder in due course, a person does not acquire rights of a holder in due course of an instrument taken (i) by legal process or by purchase in an execution, bankruptcy, or creditor's sale or similar proceeding, (ii) by purchase as part of a bulk transaction not in ordinary course of business of the transferor, or (iii) as the successor in interest to an estate or other organization.

(d) If, under Section 3-303(a)(1), the promise of performance that is the consideration for an instrument has been partially performed, the holder may assert rights as a holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the value of the partial performance divided by the value of the promised performance.

(e) If (i) the person entitled to enforce an instrument has only a security interest in the instrument and (ii) the person obliged to pay the instrument has a defense, claim in recoupment, or claim to the instrument that may be asserted against the person who granted the security interest, the person entitled to enforce the instrument may assert rights as a holder in due course only to an amount payable under the instrument which, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.

(f) To be effective, notice must be received at a time and in a manner that gives a reasonable opportunity to act on it.

(g) This section is subject to any law limiting status as a holder in due course in particular classes of transactions.

§ 3-303. VALUE AND CONSIDERATION.

(a) An instrument is issued or transferred for value if:

(1) the instrument is issued or transferred for a promise of performance, to the extent the promise has been performed;

(2) the transferee acquires a security interest or other lien in the instrument other than a lien obtained by judicial proceeding;

(3) the instrument is issued or transferred as payment of, or as security for, an antecedent claim against any person, whether or not the claim is due;

(4) the instrument is issued or transferred in exchange for a negotiable instrument; or

(5) the instrument is issued or transferred in exchange for the incurring of an irrevocable obligation to a third party by the person taking the instrument.

(b) "Consideration" means any consideration sufficient to support a simple contract. The drawer or maker of an instrument has a defense if the instrument is issued without consideration. If an instrument is issued for a promise of performance, the issuer has a defense to the extent performance of the promise is due and the promise has not been performed. If an instrument is issued for value as stated in subsection (a), the instrument is also issued for consideration.

 

[socalmaria]

Thank you Bryan for your reply. I agree with everything you have stated and will try to find more information on the HDC law as it applies in California. I did forget to say that the amount of the check was $300 and was half of what we had agreed upon with the landscaper for the entire project. The check cashing place keeps threatening to get a lawyer, but I don't think any lawyer would want to start proceedings for $300. This is definitely a small claims court thing. And the check cashing place has, in their own words, tried to get the money from the landscaper, but because he doesn't respond they got frustrated and came after us.

If any lawyer out there can add more information to this thread I'd greatly appreciate it.

Thanks,
Maria

 

[freedomfighter4]

So, what's happened?

Been a while since your post.

I would think if you got sued, you'd have excellent recourse for a countersuit.