this law, personal defenses between prior parties to a negotiable instrument, while good against a mere holder or transferee, may not be asserted against a holder in due course. It, therefore, becomes necessary at the outset to determine whether the plaintiff enjoys the status of a holder in due course. Section 28-101 defines a holder as 'the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.' Section 28-402, provides:
'A holder in due course is a holder who has taken the instrument under the following conditions:
'First. That it is complete and regular upon its face.
'Second. That he became the holder of it before it was over due, and without notice that it had been previously dishonored, if such was the fact.
'Third. That he took it in good faith and for value.
'Fourth. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.'
Section 28-305 provides:
'A special indorsement specifies the person to whom or to whose order the instrument is to be payable; and the indorsement of such indorsee is necessary to the further negotiation of the instrument. An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer and may be negotiated by delivery.'
Applying the above quoted sections of the District of Columbia Code (1951) to the circumstances under which the plaintiff received the check, we find that the check was specially endorsed to the clerk of the California court, and without his endorsement, it could not be further negotiated. The subsequent stamped endorsement of the Los Angeles County Treasurer could only operate as a transfer of title, placing plaintiff in the position of a transferee. Section 28-320
gives the plaintiff the right to demand the endorsement of the court clerk, but for the purpose of determining whether she is a holder in due course, the negotiation thereby accomplished would be effective as of a date yet in the future, a date subsequent to her knowledge of the defect in the title of the person negotiating it and of its having been previously dishonored.
Payment of the basic obligation by the defendant bank by reason of the fraud perpetrated by Ned Whitehead, in which the payee of the original check joined at least to the extent of specially endorsing the 'duplicate' check to Ned Whitehead, is certainly a good defense as to such payee of the original check. Section 28-408 provides that 'in the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were nonnegotiable.' Because none of the prior holders of this check took it for value, none were holders in due course, and plaintiff's status is not aided by reason of the further provision of Section 28-408 that 'a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.' Moreover, inasmuch as she is not the payee or endorsee of an order instrument, nor the bearer of a bearer instrument, plaintiff does not qualify as a 'holder' of the check in question. As plaintiff cannot qualify as a holder in due course, she cannot escape the defense that defendant's obligation to the maker and payee of the check in question has been paid.
Plaintiff contends that the California judgment, which is entitled to full faith and credit, conclusively establishes her right to the check and its proceeds against all the parties who might otherwise have asserted an interest in it. With this contention, I have no disagreement. The rights of the defendant bank were not litigated in that suit, wherein it was not a party, and defendant is not here asserting any interest in the check, but rather defending against the payment of it on the ground that it has discharged the obligation incurred by such check.
It is unusual that the plaintiff and the defendant bank each seeks to rely upon the doctrine of equitable estoppel that, where one of two innocent persons must suffer loss, the loss must be borne by the party who made the loss possible. Plaintiff asserts that the loss was caused by Ned Whitehead's fraud and by the bank's reliance on his false representations. Defendant, on the other hand, asserts that the loss was occasioned by plaintiff's failure (1) to take steps to notify the bank of her claim to the instrument, or (2) to see that the instrument was presented for payment by the court clerk who had possession of it. The Court is of the opinion that all of these elements contributed to the loss, and relief cannot be had by either party by reliance upon the doctrine in question.
Inasmuch as plaintiff has been found not to be a holder in due course, the defense interposed by defendant that the check was not timely presented for payment, and plaintiff's claim that a treasurer's check of a bank cannot become over due, need not be resolved.
Judgment will be entered in favor of the defendant and reluctantly in favor of the third-party defendants, who only become liable in the event of a judgment in favor of plaintiff against the defendant bank.
Counsel will prepare an appropriate order carrying this decision into effect.