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November 19, 1984

Antonio DA SILVA and Maria De Lourdes C.F.M. Da Silva, Plaintiffs,
James C. SANDERS, Administrator, United States Small Business Administration, et al., Defendants

The opinion of the court was delivered by: CORCORAN

 CORCORAN, Senior District Judge.

 A. Facts

 Antonio and Maria Da Silva (plaintiffs) were principal shareholders in a District of Columbia corporation known as April in Portugal Masonry, Inc. (April in Portugal). To cover a loan, April in Portugal executed a $ 50,000 promissory note in favor the Riggs National Bank of Washington (Riggs). The United States Small Business Administration (SBA) and the plaintiffs guaranteed the note. The plaintiffs secured their guaranty with their personal residence. April in Portugal defaulted on the note in May 1979, and the SBA thereupon purchased the note and plaintiffs' guaranty from Riggs.

 On June 15, 1979, April in Portugal filed a petition in bankruptcy. Consequently, under the terms of the note, the entire unpaid principal became due and payable. From the bankruptcy estate and from redemption of certain stock, the SBA received $ 32,935.49 as partial payment of the unpaid principal. The plaintiff advised the SBA that they would sell their home to pay the remaining balance.

 Homestead Settlement Company (Homestead) sold the plaintiffs' house on June 19, 1981. On July 8, 1981 a personal check payable to Homestead for $ 141,092 was deposited in Homestead's escrow account at the National Bank of Washington (NBW). Five days later, NBW issued and delivered to Homestead a $ 10,000 cashier's check payable to SBA. NBW had relied on the proceeds from the $ 141,092 personal check to serve as consideration for the cashier's check, even though the personal check had not cleared the proper banking channels.

 Homestead forwarded the cashier's check to the SBA to satisfy the plaintiffs' loan obligation. The SBA received the cashier's check on July 28, 1981, and, on the following day, mailed to Homestead the necessary documents to release the plaintiffs' obligation and SBA's lien on their property.

 On August 28, 1981, the SBA's Denver Fiscal Office deposited the cashier's check in its Denver bank. The check cleared the Federal Reserve Bank (FRB), and, on August 31, 1981, the cashier's check was presented to NBW for payment. More than a month earlier, however, a Florida bank had returned the $ 141,092 personal check "payment stopped, " because the personal check had been stolen or forged. Further investigation showed that Homestead had closed shop and left town. Consequently, NBW refused to honor its cashier's check, claiming fraud and lack of consideration. In turn, SBA attempted to regain its secured position on plaintiffs' residence through the local deeds office and refused to credit plaintiffs' records for any amount covered by the cashier's check.

 On October 4, 1983, the plaintiffs filed a complaint against the SBA alleging breach of contract and fiduciary duty. On January 17, 1984, the SBA cross-claimed against the NBW for wrongful dishonor of the cashier's check. *fn1"

 Both SBA and NBW have moved for summary judgment. *fn2" We find no genuine issue of material fact. *fn3" Accordingly, we must decide whether the Uniform Commercial Code in the District of Columbia allows the NBW to dishonor its cashier's check because of fraud or lack of consideration, notwithstanding that the payee of the cashier's check, the SBA, is an innocent party.

 B. Discussion

 A cashier's check is a negotiable instrument drawn by a bank upon itself. Swiss Credit Bank v. Virginia National Bank, 538 F.2d 587, 588 (4th Cir.1976); Munson v. American National Bank & Trust Co., 484 F.2d 620, 624 (7th Cir.1973); Michie on Banks and Banking, ch. 12 § 13 at 359 (1984). Although the common belief is that cashier's checks are the same as cash, the provisions of the Uniform Commercial-Code (UCC) give no indication as to how the courts should treat them, *fn4" and, since the enactment of the UCC in 1965, the District of Columbia courts have offered no guidance. *fn5" Consequently, we examine how other jurisdictions have construed the statutory language of the UCC and what role equity plays in determining whether banks may dishonor their cashier's checks.

 1. The Two Statutory Approaches

 Courts in other jurisdictions have divided sharply as to when a bank has a defense which arises from the purchase of a cashier's check. See generally L. 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) [hereinafter cited as Lawrence, Cashier's Checks ]. One group considers cashier's checks as ordinary negotiable instruments and treats them as such under the UCC. Id. at 286. According to these courts, if the payee of the cashier's check is a holder in due course, the bank may only raise real defenses before dishonoring its cashier's check. D.C.Code Ann. § 28:3-305. *fn6" However, if the payee is not a holder in due course, the bank may ...

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