Answer:
If the check is replaced with another cashier's check, both of the checks are liabilities that the bank must honor if presented by a person entitled to enforce them. If presented for payment directly by the payee, you could refuse to cash the original check, since you had replaced it, but if the check is presented by someone other than the payee (for instance, by another bank), you'd be liable on the check, whether it was the original check or the replacement. In other words, you can't refuse payment. Take a look at your state's version of Article 3 of the Uniform Commercial Code (UCC). Look for section 3-312 (4-403 in New York). Read it through carefully. Although the language in your state might differ, the standard wording indicates that the claimant has to have had possession of the check in order to make a claim. If your payee truly never received the check in question, I don't believe he or she can make the claim. That means the bank (your bank) would have to make the declaration and claim as the remitter in this case.
Once the claim is made under section 3-312, you should wait 90 days from the issue date of the original check before issuing the replacement. Then, you can refuse payment of the original if it should show up. If you can't use section 3-312 or decide to reissue before the 90 day waiting period, the UCC doesn't give you any "out" from liability on the original check if presented by a holder in due course. The best you could do is try to recover for the double payment from your customer. Some banks in such a situation would attempt to limit their risk by requiring that the customer provide an indemnity bond or other security. That's an expensive thing to obtain (sometimes it can't be done). Other banks weigh the risk that the original check will pop up and may decide to replace the check in spite of the risk.
First published on BankersOnline.com 1/28/08
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