Upon issuance of a cashier's check, a bank creates a primary obligation to the payee. State ex rel. Chan Siew Lai v. Powell, Mo., 536 S.W.2d 14 (1976); Bank of Niles v. American State Bank, 14 Ill. App.3d 729, 303 N.E.2d 186 (1973). The Bank, relying on such cases as TPO, Inc. v. Federal Deposit, Inc., 487 F.2d 131 (3rd Cir. 1973), and Laurel Bank Trust Company v. City National Bank of Connecticut, 33 Conn. Sup. 641, 365 A.2d 1222 (1976), argues that the obligation created by the issuance of the cashier's check is not absolute toward a payee who is not a holder in due course.
See, e.g., Gillespie v. Riley Management Corp., 59 Ill. 2d 211, 216 (1974) ("The cashier's check is substantially equivalent to a certified check in that neither generally can be countermanded and both circulate in the commercial world as primary obligations of the issuing bank as substitutes for the money represented"). But see Bank of Niles v. American State Bank, 14 Ill. App. 3d 729 (1973) (departed from in Able). The approach followed in Able came to be known as the "cash substitute" or "cash equivalency" approach, or the "acceptance approach."
( Day-Luellwitz Lumber Co. v. Serrell (1913), 177 Ill. App. 30.) A money order is considered a third-party draft. Bank of Niles v. American State Bank (1973), 14 Ill. App.3d 729, 732; Ill. Rev. Stat. 1991, ch. 17, par. 4703.
Black's Law Dictionary 907 (5th Ed. 1979). Plaintiff, relying on Bank of Niles v. American State Bank (1973), 14 Ill. App.3d 729, maintains that a money order is similar to a cashier's check on which payment cannot be stopped since in issuing a cashier's check a bank promises to pay out of its own funds a certain sum of money to a certain person or entity. (See 14 Ill. App.3d at 733.)
Other jurisdictions disdain a per se rule and allow a bank to dishonor its cashier's check where the check holder has dealt directly with the bank or is not a holder in due course, and where there is a failure of consideration or a fraud perpetrated on the bank.See Swiss Credit Bank v. Virginia Nat'l Bank-Fairfax, 538 F.2d 587 (4th Cir. 1976); Munson v. American Nat'l Bank and Trust Co. 484 F.2d 620 (7th Cir. 1973); Kaufman v. Chase Manhattan Bank, 370 F. Supp. 276 (S.D.N.Y. 1973); Able Assocs., Inc. v. Orchard Hill Farms, 395 N.E.2d 1138 (Ill.App.Ct. 1979), overruling Bank of Niles v. American State Bank, 303 N.E.2d 186 (Ill.App.Ct. 1973); National Newark Essex Bank v. Giordano, 268 A.2d 327 (N.J.Super.Ct. 1970); Moon Over The Mountain, Ltd. v. Marine Midland Bank, 87 Misc.2d 918, 386 N.Y.S.2d 974 (N.Y. Civ. Ct. 1976); Wertz v. Richardson Heights Bank and Trust, 495 S.W.2d 572 (Tex. 1973).See TPO, Inc. v. FDIC, 487 F.2d 131 (3d Cir. 1973); National Bank v. Miner, 140 P. 27 (Cal. 1914); Wilmington Trust Co. v. Delaware Auto Sales, 271 A.2d 41 (Del. 1970); Tropicana Pools, Inc. v. First Nat'l Bank, 206 So.2d 48 (Fla.Dist.Ct.App. 1968); Wright v. Trust Co., 134 S.E.2d 457 (Ga.Ct.App. 1963); State Bank v. American Nat'l Bank, 266 N.W.2d 496 (Minn.
In such a case the bank may assert its own defenses against one who is not a holder in due course. See Swiss Credit Bank v. Virginia Natl. Bank-Fairfax, 538 F.2d 587 (4th Cir. 1976); State v. Curtiss Natl. Bank, 427 F.2d 395 (5th Cir. 1970); Munson v. American Natl. Bank Trust Co., 484 F.2d 620 (7th Cir. 1973); Texaco, Inc. v. Liberty Natl. Bank Trust Co., 464 F.2d 389 (10th Cir. 1972); Kaufman v. Chase Manhattan Bank, Natl. Assn., 370 F. Supp. 276 (S.D.N.Y. 1973); Able Associates, Inc. v. Orchard Hill Farms, 77 Ill. App.3d 375 (1979), overruling Bank of Niles v. American State Bank, 14 Ill. App.3d 729 (1973); Meador v. Ranchmart State Bank, 213 Kan. 372 (1973); State ex rel. Chan Siew Lai v. Powell, 536 S.W.2d 14 (Mo. 1976); National Newark Essex Bank v. Giordano, 111 N.J. Super. 347 (1970); Moon Over the Mountain, Ltd. v. Marine Midland Bank, 87 Misc.2d 918 (N.Y. Civ. Ct. 1976); Wertz v. Richardson Heights Bank Trust, 495 S.W.2d 572 (Tex. 1973). See TPO, Inc. v. Federal Deposit Ins. Corp., 487 F.2d 131 (3d Cir. 1973); Wilmington Trust Co. v. Delaware Auto Sales, 271 A.2d 41 (Del. 1970); Tropicana Pools, Inc. v. First Natl. Bank, 206 So.2d 48 (Fla. App. 1968); Wright v. Trust Co. of Georgia, 108 Ga. App. 783 (1963); State Bank v. American Natl. Bank, 266 N.W.2d 496 (Minn.
In support, it is first argued that since Orchard had ordered payment stopped on the check which plaintiff exchanged for Union's cashier's check, plaintiff did not give value for such cashier's check; that under section 3-302 of the Uniform Commercial Code (Ill. Rev. Stat. 1977, ch. 26, par. 3-302) (hereinafter cited as the Code), plaintiff is therefore not a holder in due course of the cashier's check; that because plaintiff is not a holder in due course, Union may refuse payment on the grounds of failure of consideration under section 3-306; that there was in fact a failure of consideration inasmuch as payment was stopped on Orchard's check which was given in exchange for the cashier's check; and that, therefore, Union was justified in stopping payment on the cashier's check. In support of this argument, plaintiff cites Bank of Niles v. American State Bank (1973), 14 Ill. App.3d 729, 303 N.E.2d 186. There, after an individual named Kantaris had been charged with defrauding the Bank of Niles by means of a worthless check, an agreement was worked out whereby the charges against Kantaris were to be reduced from a felony to a misdemeanor if she repaid $2,000. Kantaris, using a check ostensibly drawn by her employer on another bank, purchased a cashier's check from the American State Bank made payable to the vice president of the Bank of Niles.
See Ross v. Peck Iron Metal Co., 264 F.2d 262, 269 (4th Cir.). The fact that a cashier's check is said to be "accepted when issued" does not mean, as the plaintiff contends, that the defendant is obligated to pay regardless of any defenses and regardless of whether the plaintiff is a mere holder or a holder in due course. See Bank of Niles v. American State Bank, 14 Ill. App.3d 729, 732. With respect to the issuing bank's ability to stop payment on a cashier's check, analogies to a customer's right to stop payment on an ordinary check are inapposite and confusing. TPO Incorporated v. Federal Deposit Insurance Corporation, 487 F.2d 131, 136 (3d Cir.). The proper approach is to view the issuing bank, acting in its dual role as drawer and drawee, as the equivalent of a maker of a negotiable promissory note payable on demand.