BARFIELD, Judge.
Barnett Bank appeals a final summary judgment in favor of Warren Finance in Warren's action for Barnett's wrongful dishonor of cashier's checks presented for payment by Warren. Finding factual issues to be resolved by the trier of fact, we reverse for further proceedings.
Warren Finance entered a financing arrangement with Redan Engineering whereby Warren would advance funds to Redan. When Redan was paid for work Redan performed, Redan would deliver those checks to Warren in return for funds advanced. On one occasion, Warren demanded cashier's checks in payment from Redan. Redan obtained three cashier's checks, totalling $221,443, from Barnett Bank to replace three checks drawn on accounts at Barnett and delivered to Redan for work performed. Redan was named as payee on the cashier's checks; the original payors were named as purchasers of the cashier's checks. After Redan endorsed the checks to Warren, Warren refused to advance any more funds to Redan. With the assistance of one of the payors of the original checks, Redan had Barnett stop payment on the cashier's checks. Barnett refused to honor the cashier's checks when presented for payment by Warren.
Warren then brought this action against Barnett, contending Barnett wrongfully dishonored the three cashier's checks. Barnett defended on the basis that Warren was not a holder in due course and asserted various defenses related to the transaction between Warren and Redan. Barnett filed a third party complaint against Redan.
After Barnett stopped payment on the original cashier's checks, the bank issued replacement cashier's checks in the same amount to Redan, which is now bankrupt.
In deposition, Janet and John Odom, principals in Redan, stated that Warren had agreed to advance additional funds to Redan in return for the cashier's checks. They maintained that they would not have given the checks to Warren if Warren had not promised to advance additional funds. The funds were needed to cover outstanding checks issued by Redan. Ellis Warren deposed that the Odoms did not request an advance of additional funds until after the cashier's checks had been delivered to Warren. Upon Warren's motion, the trial court entered summary judgment for Warren against Barnett for the amount of the dishonored cashier's checks.
The general rule is that a cashier's check is drawn by a bank on its own accounts and is accepted by the issuing bank in advance by the very act of issuance. Crosby v. Lewis, 523 So.2d 1154 (Fla. 5th DCA 1988); State of Pennsylvania v. Curtiss National Bank of Miami Springs, Florida, 427 F.2d 395 (5th Cir. 1970) (applying Florida law); Annot., 97 A.L.R.3d 714 (1980). A number of jurisdictions take the position that once a cashier's check is issued, a bank may not subsequently refuse to honor it when presented for payment, on either its own initiative or upon request of any party to the check. These courts view a cashier's check as the equivalent of cash. For policy reasons to preserve confidence in such checks as the next best thing to cash, a bank should not be permitted to refuse to honor its cashier's check when presented for payment. See National Newark and Essex Bank v. Giordano, 111 N.J. Super. 347, 268 A.2d 327 (1970).
Munson v. American National Bank Trust Co., 484 F.2d 620 (7th Cir. 1973); Da Silva v. Sanders, 600 F. Supp. 1008 (D.D.C. 1984) (bank could not refuse to honor cashier's check presented by innocent payee although there was fraud and failure of consideration in the purchase of the check); First Financial L.S.L.A. v. First American Bank and Trust Co., 489 So.2d 388 (La. Ct. App.), writ denied, 492 So.2d 1217 (La. 1986) (bank could not raise defense of failure of consideration in refusing to pay cashier's check); Moon Over The Mountain, Ltd. v. Marine Midland Bank, 87 Misc.2d 918, 386 N.Y.S.2d 974 (N.Y. Civ. Ct. 1976) (payee could not stop payment of cashier's check when presented by endorsee).
Under UCC 3-410, (codified at section 673.410, Florida Statutes), these courts conclude that the signature of a bank official on the cashier's check constitutes the bank's "signed engagement to honor the draft as presented." Since the cashier's check is "accepted" upon issuance, a bank or a customer of the bank may not stop payment under UCC 4-303 (section 674.303) as a stop order comes too late to terminate the duty to pay the check if the stop order is received after the bank has accepted the check. The bank therefore may not raise the defenses in UCC 3-305 or 3-306 as that would constitute a stop order which is barred by UCC 4-303.
Other jurisdictions hold that a bank may refuse to honor a cashier's check, based on either the bank's defenses or defenses the purchaser, payee or an endorsee may assert against the holder presenting a check for payment. These jurisdictions view a cashier's check as a promissory note issued by the bank or as a draft of the bank accepted in advance but against which the bank may raise defenses to avoid payment. See Da Silva, 600 F. Supp. at 1008; Lawrence, Making Cashier's Checks and Other Bank Checks Cost Effective: A Plea For Revision of Articles 3 and 4 of the Uniform Commercial Code, 64 Minn.L. Rev. 275, 285-320 (1980) for a discussion of these various approaches to cashier's checks.
TPO Inc. v. Federal Deposit Insurance Corp., 487 F.2d 131 (3rd Cir. 1973); Banco Ganadero y Agricola, S.A. v. Society National Bank of Cleveland, 418 F. Supp. 520 (N.D.Ohio 1976); Rezapolvi v. First National Bank of Maryland, 296 Md. 1, 459 A.2d 183 (1983); Santos v. First National State Bank, 186 N.J. Super. 52, 451 A.2d 401 (App. Div. 1982); Leo Syntax Auto Sales v. Peoples Bank Savings Co., 6 Ohio Misc. 226, 35 Ohio Op.2d 330, 215 N.E.2d 68 (1965).
UCC 3-118(1), (section 673.118(1)), provides that a "draft drawn on the drawer is effective as a note." As the bank is both the drawer and drawee on a cashier's check, the bank becomes the note's maker. The bank as the maker of a note is then entitled to assert the defenses available under UCC 3-305 and 3-306. See TPO Inc. v. Federal Deposit Insurance Corp., 487 F.2d 131 (3rd Cir. 1973).
Under UCC 3-413, the contract of one who accepts a check is identical to that of a maker. As makers are subject to 3-305 and 3-306, then the bank issuing a cashier's check, which amounts to acceptance in advance, may also avail itself of the defenses present in those sections of the UCC.
Courts construing Florida law take the position that a cashier's check in the hands of a holder in due course cannot be countermanded or otherwise subject to stop payment. Sani-Serv Division of Burger Chef Systems, Inc. v. Southern Bank of West Palm Beach, 244 So.2d 509 (Fla. 4th DCA 1970); Tropicana Pools, Inc. v. First National Bank of Titusville, 206 So.2d 48 (Fla. 4th DCA 1968) (a pre-UCC case decided under the Uniform Negotiable Instruments Law). Where the holder is not a holder in due course, i.e., did not take for value or knew of a possible defense to payment, a bank may defend against payment where the bank itself stands to be victimized by payment of the cashier's check. Thus, a bank has been held entitled to assert defenses of lack or failure of consideration in the issuance of the cashier's checks, section 673.408, or such other defenses as it might assert under section 673.306. Curtiss National Bank, 427 F.2d at 395; Sani-Serv, 244 So.2d at 509 (if the holder was not a holder in due course, the bank could raise defenses of lack or failure of consideration, fraud, estoppel, or mutual mistake in the issuance of the cashier's check). However, as pointed out in Crosby v. Lewis, 523 So.2d at 1156, there is no clear authority in Florida for a bank's assertion of defenses or claims of another party to a transaction involving a cashier's check, such as those of a purchaser, a payee or an endorsee of a cashier's check.
One who takes the check for value, in good faith and without notice of any defense or claim to it by any person. § 673.302, Florida Statutes.
It is our view that in a cashier's check an issuing bank makes a promise to the named payee that it will honor the check without reservation when presented by a payee who is a holder in due course. Where the payee participates in a fraud upon the bank in the check's issuance, then the payee would not be a holder in due course and the issuing bank could raise the defense of failure of consideration or other potential defenses available under sections 673.305-.306, Florida Statutes. Curtiss National Bank, 427 F.2d at 395; SaniServ, 244 So.2d at 509. However, any claim or defense of the check's purchaser can not be asserted to stop payment of a check presented by the named payee. In the hands of the payee, a cashier's check would be the next best thing to cash as the bank could only defend on the basis of a fraud upon the bank itself. Any issues related to the underlying transaction between the purchaser and payee could not be raised in defense of dishonor.
However, as in the instant case, where a cashier's check is endorsed by the payee, e.g. Redan Engineering, to a third person, e.g. Warren Finance, in satisfaction of an obligation separate and apart from the check's issuance or the initial transaction for which the check was obtained, then a cashier's check loses its cash-like aspects and becomes more like a negotiable instrument to which claims and defenses of other parties, such as Redan, will attach. In that situation, a bank may, at its discretion, refuse to honor the check when presented by an endorsee based on the claim or defense of the payee or of an intervening endorsee of the check.
In Leo Syntax Auto Sales, Inc. v. Peoples Bank Savings Co., 6 Ohio Misc. 226, 35 Ohio Op.2d 330, 215 N.E.2d 68 (Tuscarawas Co. C.P. 1965), the payee of a cashier's check (who was also the purchaser) endorsed the check in payment for a car. The car was then discovered not to be in the condition represented and the payee had the bank refuse to honor the check when presented. The Ohio court held the bank could, if it so chose, refuse payment on the check when presented by one not a holder in due course or by one who obtained the endorsement by fraud.
The Ohio court also held that in the subsequent litigation, the payee was not a necessary party but the bank was entitled to the benefit of the payee's defenses against the endorsee.
We disagree with the decision in Leo Syntax to the extent it appears to suggest a purchaser who was not a payee could seek dishonor of a cashier's check. However, we agree with its conclusion that a bank could upon the payee's request refuse to pay a cashier's check in the hands of a party who obtained the check by endorsement. For once a cashier's check begins to circulate through endorsement to parties other than the payee, the check becomes entangled in other transactions, the parties to which must naturally place less reliance on a cashier's check as the equivalent to cash. Claims and defenses to payment to the check will arise as an endorsed cashier's check is used to satisfy obligations unrelated to the original transaction for which the cashier's check was obtained. This result would insure the continuing treatment of a cashier's check as the equivalent of cash in the hands of a payee with the status of a holder in due course. Any other holder would take the check subject to certain defenses, of the bank, where the payee is not a holder in due course, and of a payee, where the endorsee is not a holder in due course. The defenses and claims of the original purchaser would never be available to deny payment.
Under section 673.306(4), Barnett may, by naming Redan as a third party, assert certain claims Redan could assert against Warren, such as lack of consideration or fraud in the underlying transaction. Further, by issuing replacement cashier's checks to Redan, Barnett became subrogated to those claims which Redan had against Warren Finance and may therefore raise them as if Redan were in the litigation.
"The claim of any third person to the instrument is not otherwise available as a defense to any party liable thereon unless the third party himself defends the action for such party."
Under UCC § 4-407 (section 674.407, Florida Statutes), a payor bank which pays an item over a stop-payment order of the drawer or maker or "under circumstances giving a basis for objection by the drawer or maker, to prevent unjust enrichment and only to the extent necessary to prevent loss to the bank by reason of its payment of the item," the payor bank is subrogated to the rights of one, any holder in due course as against the drawer or maker, second, of the payee or any holder against the drawer or maker on the item or on the underlying transaction, or third, of the drawer or maker against the payee with respect to the underlying transaction. See also supra footnote 8. We also note that Barnett could have required Redan to agree to indemnify Barnett in return for dishonoring the checks at Redan's request or Barnett could have insisted on Redan obtaining a court order directing the bank to refuse to honor the checks. Section 673.603, Florida Statutes. Alternatively, Barnett could have availed itself of an interpleader action, by depositing the funds in the registry of the court and allowing Redan and Warren Finance to resolve their claims in court.
Therefore, issues of fact remain as to whether Warren as the endorsee of the three cashier's checks is a holder in due course and is entitled to have the checks honored. That issue cannot be resolved on the basis of the current record of this case. The summary judgment in favor of Warren Finance is therefore REVERSED and the case REMANDED for further proceedings consistent with this opinion.
ERVIN and JOANOS, JJ., concur.