What is a business’s liability regarding a fraudulent check?
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What is a business’s liability regarding a fraudulent check?
I own a small company. We issued a payroll check to an employee. He cashed the check and it cleared my bank several months ago. Yesterday, I received notice of dishonored check and demand for immediate payment for the amount of the check plus a $35 return check fee because the payee presented a fraudulent duplicate check to a different check cashing place and my bank
returned the check because it already paid on the first one. A law firm claims that our company is liable for the second fraudulent check because it was written on our company check. Did our liability end after the legitimate check was cashed the first time or are we liable for the payee’s criminal activity when they presented a fraudulent check that was returned by the bank?
Asked on March 26, 2019 under Business Law, Michigan
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 5 years ago | Contributor
The law firm is wrong: you are NOT liable for the criminal actions of another person, even a former employee. Another person's criminal acts cut off your liablity unless it can be shown that you were particularly careless ("negligent") in some way and your negligence led to the crime. Otherwise, whether it was originally your check or not, you are not responsible--only the criminal is; that person can be sued for the money.
To analogize: if you have a company van and someone steals it and runs another person over, you are not liable for their assault or hit-and-run unless you were extraordinarily careless: e.g. left the van unattended, motor running, in a some unsecure place, so that anyone could easily come by and take it and misuse it.
In the situation you describe, there is nothing negligent about issuing a payroll check to any employee; you are not liable.
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