You are an owner of a small food market and provide a check-cashing service to your customers. One of your customers, Jack, cashed a check at the store for $200. You make a daily deposit of checks and cash to your bank, and in the process properly indorsed Jack’s check and included it in your deposit.
Your deposit reached your bank, First State, and Jack’s check was credited to your bank account. The check then went into the clearing process and was presented for payment at Jack’s bank, Third State. Unfortunately, Jack had insufficient funds in his bank account and the check was dishonored and stamped as not paid due to insufficient funds. It was then sent back to your bank, First State, who deducted the $200 from your bank account and sent the dishonored check to you.
A. Who has primary liability for payment of the check?
B. Who has/had secondary liability and when does it come into play? (Note: There were two parties who become secondarily liable as the check moved through the system.)