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I am a business owner in Arizona. I have an employee who borrowed money from the company, signed a promissory note and an Authorization Form authorizing the company to make payroll deductions toward the promissory note. The form does not specify any amount, it is what I would like to consider a carte blanc authoriztion form. The employee was fired upon discovery of theft. He had gotten his paycheck early (payday is Friday, he got it Wednesday, the day the theft was discovered). We stopped pay on the check and applied the net pay toward his promissory note. Gross pay was still made, taxes withheld and remitted, child support withheld and remitted. Only the net pay was kept. The issuing bank was given the reason for stop payment, and our bank representative tell us that the grocery store that took the check only recourse is the ex-employee as the holder in due course. As I said, the ex-employee signed the check over to a grocery store. The ex-employee has not made good on the check to the grocery store, and that store is calling us. Our bank called the grocery store and advised them that their recourse is the ex-employee but it has not been able to collect from him. What is my company's exposure? I am a CPA, and in my limited training on negotiable instruments, the check has to go back in the line of issuance. Could you update and explain to me what the law is? Thank you Mike
Is Arizona the same as most other states in this respect?
I don't disagree with the law on this, but my clear recollection is that the check went back in the line of each holder. Holder in Due Course is the terminology that I recall.