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Question: “Can a check cashing business who cashes a check in good faith but is retunred for stop payment pursue maker (who stopped payment say for good cause) using holder in due course arguement. Maker has money, payee is long gone. Golly, I have heard several versions to this question.”
Answer: Yes, the check cashing business may go after the issuer of the check because of the holder in due course rule (as an FYI, a maker refers to a note…an issuer or drawer refers to a check). The business may alternatively go after the payee who transferred the check. If it goes after the issuer, then it will be up to the issuer to go after the payee.
The exception would be if the issuer has a “real” defense. A “real” defense is something like forgery, fraud, etc. If the check was stopped for a reason specific to the underlying transaction, such as if the payee did not fulfill some obligation, then that is not a “real” defense, and cannot be used to refuse to pay a holder in due course.
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