USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 94-1537
JEAN R. KENERSON,
ADMINISTRATRIX OF THE ESTATE
OF VAUGHAN H. KENERSON,
Plaintiff - Appellant,
v.
FDIC, ET AL.,
Defendants - Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Shane Devine, U.S. District Judge]
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Before
Torruella, Chief Judge,
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Coffin, Senior Circuit Judge,
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and Keeton,* District Judge.
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Cordell A. Johnston, with whom Bradford W. Kuster and Orr
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and Reno, P.A. were on brief for appellant.
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Irvin D. Gordon, with whom William D. Pandolph and Sulloway
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& Hollis were on brief for appellee Dean Witter Reynolds Inc.
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Emily Gray Rice, with whom Broderick & Dean, P.A. was on
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brief for appellees Bank of California, N.A. and Morgan Guaranty
Trust Company.
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January 5, 1995
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* Of the District of Massachusetts, sitting by designation.
KEETON, District Judge. This case arises from the
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fraudulent conduct of an attorney who forged check indorsements
and absconded with a widow's money. The attorney, however, is
not a party. Rather, the widow, appellant Jean Kenerson, suing
in her capacity as administratrix of her deceased husband's
estate, seeks to recoup her losses from the institution ("Dean
Witter") that wrote the checks and the banks on which they were
drawn. We use "plaintiff" (or "appellant") to refer to Mrs.
Kenerson in her capacity as currently the administratrix and
formerly co-administrator with the attorney.
The trial court granted motions for summary judgment
for all defendants. We affirm the judgment for Dean Witter, but
vacate the judgment for other defendants and remand for such
further proceedings, consistent with this Opinion, as may be
necessary to final disposition.
I.
I.
One week after the death of Vaughan H. Kenerson in July
1981, the Sullivan County Probate Court appointed Jean R.
Kenerson and John C. Fairbanks as co-administrators of his
Estate. Mrs. Kenerson, having limited experience in financial
matters, including estate administration and investments, relied
on Fairbanks' legal and investment counsel. She took little, if
any, role in the Estate administration.
In August 1981, Fairbanks opened an Estate checking
account at First Citizens National Bank, listing himself as the
sole authorized signatory. He also maintained a trust account
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for his law offices at the same bank.
In November 1981, Fairbanks opened an account for the
Estate with Dean Witter Reynolds, Inc., into which he placed
stock holdings of the Estate valued at $248,660.87. Fairbanks
did not inform Mrs. Kenerson of the existence of the Dean Witter
account or of his withdrawals from it, totalling $255,978.38
between November 1981 and the closing of the account in October
1984. Fairbanks received the withdrawals in the form of checks
that were mailed to him. Most of the checks were issued in the
following manner:
Pay to the order of
Estate of Vaughan H. Kenerson
Jean R. Kenerson &
John C. Fairbanks Administrators
On some checks, however, "Admin" instead of "Administrators"
appeared on the last line. The checks were drawn on Dean
Witter's accounts at Morgan Guaranty Trust Company and Bank of
California.
Fairbanks deposited one of the Dean Witter checks, in
the amount of $150,000, in his own account at First Citizens
National Bank. He deposited the other checks in the Estate
checking account that he had opened at First Citizens National
Bank. Fairbanks indorsed these checks by writing first his own
name (without any description of his role), followed by the name
of Mrs. Kenerson. No evidence was offered at trial that Mrs.
Kenerson had ever affirmatively authorized Fairbanks to indorse
any checks in her name.
In each instance, First Citizens National Bank, the
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depository bank, accepted the check and transmitted it to the
drawee bank -- Morgan Guaranty Trust or Bank of California
("Banks") -- and the drawee bank paid the check. Though the
record is not explicit, the parties appear to have assumed, and
we take it to be undisputed, that in each instance the drawee
bank charged Dean Witter's account.
Fairbanks withdrew from the Estate bank account, for
his own benefit, all but a small portion of the funds in that
account. Mrs. Kenerson acknowledged receiving only $20,000. In
any event, appellees do not contend that she received any more
than $66,000. Beyond this sum, little if any of the remaining
funds from the Estate account with First Citizens National Bank
were disbursed in any way that inured to Mrs. Kenerson's benefit,
either individually or in her capacity as co-administrator.
II.
II.
Plaintiff did not sue the most obvious target,
Fairbanks; he had disappeared. Instead she sued Dean Witter,
drawer of the checks, and Morgan Guaranty Trust and Bank of
California, drawees (or payors) of the checks. (Plaintiff
initially sued the depositor bank, too, but claims against the
F.D.I.C., as that bank's successor in interest, were dismissed by
stipulation.)
Plaintiff sued Dean Witter on the theory that it was
still liable to her on the checks because she had received only a
small portion of their value and, in her capacity as co-
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administrator and later sole administratrix, was entitled to
recover a sum equal to the remainder of the full value. She sued
the drawee Banks on the theory that they had converted the
proceeds of the checks when they paid them over the forged
indorsements of her name.
Plaintiff sued all defendants -- the drawer (Dean
Witter) and drawees (the Banks) -- on two different theories.
The trial court, in granting summary judgment to all defendants,
relied, essentially, on one proposition -- that under the U.C.C.
(as enacted in New Hampshire) and the common law (as developed in
New Hampshire) all defendants were entitled to rely on Fairbanks'
indorsement when paying on the checks he forged.
The trial court read the checks as payable to the
Estate. Based on this reading, the court concluded that
Fairbanks' negotiation of the checks -- by his own indorsement
and the forged indorsement in plaintiff's name -- absolved
defendants of liability to plaintiff. We conclude that the trial
court's reasoning rested on an impermissible reading of the
checks and that the rules of law invoked by the trial court do
not apply to the checks at issue in this case.
We assume, without deciding, that, in general, a
determination as to who are the payees of an instrument may be
one of fact if on the evidence received, under the applicable
law, reasonable finders of fact could differ. Cf. Feldman
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Construction Co. v. Union Bank, 104 Cal. Rptr. 912, 913 (Cal.
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App. 1972) (referring to "trial court's findings of fact and
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conclusions of law that the check was payable jointly to two
payees and required the endorsement of both"). We agree with the
district court that, on the evidence before the court in this
case, factfinders can not reasonably differ as to the proper
reading of the instruments at issue, and therefore the
determination of the meaning of those instruments must be made by
the court "as a matter of law."
Contrary to the determination of the trial court,
however, we conclude that the only reasonable construction of the
checks at issue in this case is that they were payable to
plaintiff and Fairbanks together (that is, collectively) as
payees, in their capacities as administrators of the Estate.1
As we explain more fully below, under the statute and
the applicable precedents, a check payable to two persons
together (as distinguished from a check payable in the
alternative, to either of two persons) can properly be negotiated
only on the valid indorsements of both payees.
Nevertheless, as explained in Parts III and IV below,
because Fairbanks had authority to receive the checks, even
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though he did not have authority to indorse them with plaintiff's
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signature and then negotiate them, summary judgment for drawer
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1 We have chosen to use the word "together," rather than
"jointly," because the drafters of the U.C.C. expressly declined
to refer to the payees of an instrument written in this way as
"joint payees." The U.C.C. omitted the word "joint" because that
term might be thought to carry a possible implication of a right
of survivorship. New Hampshire R.S.A. 382-A:3-110, comment 1.
No such implication is associated with our use of "collectively"
and "together" in this Opinion.
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Dean Witter was appropriate, given that the Banks paid the checks
and charged Dean Witter's account. This rule as to the drawer's
discharge applies even when the payment is on a forged
indorsement. It is, however, a rule as to a drawer's liability
and does not apply to drawees. For this and other reasons,
explained below, we vacate summary judgment for appellee Banks
and remand for further proceedings.
III.
III.
Plaintiff sued Dean Witter, drawer of the checks, on
the ground that Dean Witter was liable to her on the instruments
themselves. She brought her suit against Dean Witter under New
Hampshire R.S.A. 382-A:3-804, which provides in relevant part:
The owner of an instrument which is lost,
whether by destruction, theft or
otherwise, may maintain an action in his
own name and recover from any party
liable thereon upon due proof of his
ownership, the facts which prevent his
production of the instrument and its
terms.
Dean Witter did not dispute that plaintiff properly framed her
action under this section. We assume, without deciding, that
plaintiff sufficiently alleged a cause of action under 3-804.
Dean Witter asserted that it was discharged from
liability to plaintiff under R.S.A. 382-A:3-603(1), which
provides in relevant part:
The liability of any party is discharged
to the extent of his payment or
satisfaction to the holder even though it
is made with knowledge of a claim of
another person to the instrument . . . .
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The trial court, relying on this clause, granted summary judgment
for Dean Witter on the ground that Fairbanks was a holder and had
received payment on the checks Dean Witter drew on defendant
Banks.
A.
A.
We review de novo the district court's determination
that 3-603 applies, because the issue is one of law. See Salve
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Regina College v. Russell, 499 U.S. 225, 239 (1991) (courts of
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appeals must review state-law determinations of district courts
de novo).
New Hampshire courts have not explicitly considered
which U.C.C. provisions apply to instruments drafted precisely in
the manner of the instruments in this case. Thus, in construing
3-603, as well as other statutes referred to later in this
Opinion, we do not have the benefit of direct guidance from New
Hampshire case law. We are guided, however, by principles of
statutory interpretation that are well settled in New Hampshire
law. We begin by considering the words of the statute, and on
the assumption "that all words in [the] statute were meant to be
given meaning in the interpretation of the statute," Town of
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Wolfeboro v. Smith, 556 A.2d 755, 756-57 (N.H. 1989). We take
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account also of our obligation to determine manifested meaning of
a statute "from its construction as a whole, not by examining
isolated words and phrases." Petition of Jane Doe, 564 A.2d 433,
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438 (N.H. 1989).
We conclude, in light of various provisions of the
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statute taken together, that payment to Fairbanks was not
"payment . . . to the holder" for purposes of 3-603.
Nonetheless, Fairbanks was an agent of plaintiff for some
purposes, and was authorized to receive the checks on her behalf;
therefore, under a rule of the common law that was not abrogated
by enactment of the U.C.C. in New Hampshire, Dean Witter's
delivery of the checks to Fairbanks, followed by the payment of
the checks through the Banks, absolved Dean Witter of liability
on the instruments.
In all relevant respects, the New Hampshire statute
mirrors precisely the Uniform Commercial Code. Our citations
will be primarily to the New Hampshire Revised Statutes
Annotated. References to the statute in the text of this
Opinion, however, will be by section number alone.
The New Hampshire statute, as well as the Uniform
Commercial Code on which it is based, defines a "holder" as a
person who is in possession of an instrument drawn, issued, or
indorsed to him or to his order. R.S.A. 382-A:1-201(20).2 A
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2 The text, in relevant part, of the statutory provisions
considered here is as follows:
Article 1
Article 1
GENERAL PROVISIONS
GENERAL PROVISIONS
. . . .
1-201 General Definitions.
1-201 General Definitions.
. . . .
(20) "Holder" means a person who is in
possession of a document of title or an
instrument or an investment security drawn,
issued or indorsed to him or to his order or
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to bearer or in blank.
Article 3
Article 3
COMMERCIAL PAPER
COMMERCIAL PAPER
3-110 Payable to Order.
3-110 Payable to Order.
(1) An instrument is payable to order when
by its terms it is payable to the order or
assigns of any person therein specified with
reasonable certainty, or to him or his order,
. . . . It may be payable to the order of
. . . .
(e) an estate, trust or fund, in
which case it is payable to the order of
the representative of such estate, trust
or fund or his successors; . . .
. . . .
3-116 Instruments Payable to Two or More
3-116 Instruments Payable to Two or More
Persons. An instrument payable to the order
Persons.
of two or more persons
. . . .
(b) if not in the alternative is
payable to all of them and may be
negotiated, discharged or enforced only
by all of them.
3-117 Instruments Payable With Words of
3-117 Instruments Payable With Words of
Description. An instrument made payable to a
Description.
named person with the addition of words
describing him
. . . .
(b) as any . . . fiduciary [other
than an agent or officer] for a specified
person or purpose is payable to the payee
and may be negotiated, discharged or
enforced by him . . . .
3-202 Negotiation.
3-202 Negotiation.
(1) Negotiation is the transfer of an
instrument in such form that the transferee
becomes a holder. If the instrument is
payable to order it is negotiated by delivery
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holder of an instrument has the power to negotiate or transfer
it, or to discharge the instrument or enforce payment on it in
his own name. R.S.A. 382-A:3-301. Negotiation is the transfer
of an instrument in such form that the transferee becomes a
holder. R.S.A. 382-A:3-202(1). Negotiation of an instrument
that is payable to the order of specific persons is accomplished
by delivery of the instrument with all the necessary
indorsements. Id.
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It is undisputed that Fairbanks was in possession of
the checks, and that the checks were drawn to him in his capacity
as administrator. They were not drawn to him alone, however, but
to him and plaintiff together in their capacities as
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with any necessary indorsement; if payable to
bearer it is negotiated by delivery.
3-301 Rights of a Holder. The holder of an
3-301 Rights of a Holder
instrument whether or not he is the owner may
transfer or negotiate it and, except as
otherwise provided in Section 3-603 on
payment or satisfaction, discharge it or
enforce payment in his own name.
3-603 Payment or Satisfaction.
3-603 Payment or Satisfaction.
(1)The liability of any party is discharged
to the extent of his payment or satisfaction
to the holder even though it is made with
knowledge of a claim of another person to the
instrument . . . .
3-804 Lost, Destroyed or Stolen
3-804 Lost, Destroyed or Stolen
Instruments.
Instruments.
The owner of an instrument which is lost,
whether by destruction, theft or otherwise,
may maintain an action in his own name and
recover from any party liable thereon upon
due proof of his ownership, the facts which
prevent his production of the instrument and
its terms.
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administrators. Neither co-administrator, acting on his or her
own, could negotiate the checks. Rather, the indorsements of
both administrators were "necessary," as that term is used in 3-
202(1), to "negotiate[]" the checks as that term is used in 3-
116(b), according to which an instrument payable to two or more
persons, if not in the alternative, is payable to all of them
together and may be "negotiated" only by all of them. Plaintiff
never indorsed the checks. Thus, Fairbanks did not properly
negotiate the checks when he signed his indorsement, forged the
indorsement of plaintiff, and delivered the checks to the
depository bank. Consequently, Dean Witter's payment to
Fairbanks on those checks did not constitute the "payment . . .
to the holder" that results in discharge of a drawer's liability
under 3-603. To conclude otherwise would be entirely
inconsistent with 3-116(b), under which, as stated in a comment,
"the rights of one [co-payee] are not discharged without his
consent by the act of the other [co-payee]." See R.S.A. 382-A:3-
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116, comment.
We need not, and do not, decide whether Fairbanks was a
holder for any other purpose contemplated by the statute.
Rather, we decide only that, in the circumstances of this case,
under 3-603 Fairbanks was not a holder for the purpose of
discharge of Dean Witter's liability when he received Dean
Witter's payment through the drawee Banks.
Similarly, because the checks were not properly
negotiated by Fairbanks, the depository bank did not become a
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holder of the checks when Fairbanks delivered them to the bank.
See R.S.A. 382-A:3-202(1). Thus, Dean Witter's payment to the
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depository bank, through the drawee banks, also did not
constitute payment to a holder under 3-603.
As stated above, we conclude that the checks in this
case were payable to the co-administrators together. It is true
that the manner in which the checks were written is not one that
falls squarely within an explicit provision of the statute. In
these circumstances, we examine hypothetical variations, at least
some of which are explicitly referred to in the statute. We do
so with the purpose of considering which, among our hypothetical
instruments, the instruments at issue here most closely resemble.
Suppose, first, the checks had been made payable to
"Estate of Vaughan H. Kenerson," without more. It might
plausibly have been argued that under 3-110(1)(e) the
indorsement of either of the co-administrators (that is,
Fairbanks as administrator or Mrs. Kenerson as administrator)
would have discharged drawer liability under 3-603. Another,
and probably more reasonable, interpretation of the statute is
that a check drafted in this manner would be payable to all of
the representatives together, in the absence of an explicit
authorization in fact or in some source of law outside the U.C.C.
for each to act alone; but we need not and do not decide this
issue.
The trial court applied 3-110(1)(e) to the checks in
this case, as if they had been drawn only to "Estate of Vaughan
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H. Kenerson." Since Fairbanks was a representative of the
Estate, the court reasoned, the checks were payable to him under
3-110(1)(e). As we have stated above and explain further below,
however, on the record in this case, the application of 3-
110(1)(e) to these checks was erroneous as a matter of law.
Suppose, second, the checks had been made payable to
"John C. Fairbanks & Jean R. Kenerson." Then the indorsements of
both in their individual capacities would have been required to
negotiate the checks under 3-116(b). See R.S.A. 382-A:3-116(b)
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& comment. According to that provision, an instrument payable to
two or more persons, if not in the alternative, is payable to all
of them ("together," one may say) and may be negotiated only by
all of them ("together"). See, e.g., Litchfield v. Pfeffer, 116
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N.H. 485, 487-88, 363 A.2d 413, 415 (1976) (holding that trial
court properly found under 3-116(b) that notes payable to "Roy
F. Litchfield and Gloria B. Litchfield or order" could be
discharged only by both of them).
Third, suppose the checks had been made payable to
"John C. Fairbanks & Jean R. Kenerson, Administrators of the
Estate of Vaughan H. Kenerson." Then the checks would have been
payable to the named fiduciaries, according to 3-117(b), which
provides that
[a]n instrument made payable to a named
person with the addition of words
describing him . . . as any . . .
fiduciary [other than an agent or officer
of a specified person] is payable to the
payee and may be negotiated . . . by him.
See also R.S.A. 382-A:3-117(b), comment 2 (providing example of
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"John Doe, Administrator of the Estate of Richard Roe"). In this
third type of case, in which the checks are payable to both but
in their fiduciary capacities, under 3-116(b) the indorsements
of both in their fiduciary capacities would be required to
negotiate the checks. Accordingly, the indorsements of both in
their fiduciary capacities would be necessary to invoke 3-603 to
relieve the drawer of liability.
"Persons," as the term is used in 3-116 and elsewhere
in the statute, does not mean only "natural persons." This
common sense interpretation of "persons" is reinforced by a
statutory definition. R.S.A. 382-A:1-201(30) (defining person as
including "individual" or "organization"). It is further
reinforced by usage elsewhere in the statute and in judicial
opinions. See R.S.A. 382-A:3-110(1)(e) (listing "an estate,
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trust or fund" as possible "person[s]" that could qualify as
payees); see also Equipment Distributors v. Charter Oak Bank, 379
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A.2d 682 (Conn. App. Sess. 1977) (two business entities); Alumax
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Aluminum Corp. v. Norstar Bank, N.A., 572 N.Y.S.2d 133 (A.D.4
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Dept. 1991) (same). Thus, "persons" includes corporate
fiduciaries and natural persons in their fiduciary capacities, as
well as natural persons individually.
The checks in this case appear most like those in the
third of the categories described above. Except for the few
instances in which the word "Administrators" was abbreviated to
"Admin," the checks were made payable to the order of:
Estate of Vaughan H. Kenerson
Jean R. Kenerson &
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John C. Fairbanks Administrators
It is true that the sequence of names on all the checks
in this case is the reverse of the sequence in the third
hypothetical category described above, in which the
administrators were named first and the estate afterward.
Appellees urge that we attach great significance to this
difference in sequence. They contend that it was proper for the
trial court to apply 3-110(1)(e) because the Estate appears
first in the sequence. We do not interpret the statute as
supporting this contention, and appellees do not cite a single
case that suggests we should.
A more reasonable interpretation is that 3-110(1)(e)
is directed to cases in which the name of the estate is the only
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name to appear. Comment 2 to 3-110 makes this point clear:
2. Paragraph (e) of subsection (1) is
intended to change the result of
decisions which have held that an
instrument payable to the order of the
estate of a decedent was payable to
bearer . . . . The intent in such cases
is obviously not to make the instrument
payable to bearer, but to the order of
the representative of the estate.
R.S.A. 382-A:3-110, comment 2.
Appellees also contend that the checks in this case
should be subject to 3-110(1)(e) because the name of the Estate
appears alone on the first line and is not connected by "and" or
"or" to the names of its administrators. For several reasons,
the argument is not persuasive.
First, one would not expect to see "and" or "or"
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linking the name of an estate with its administrators because the
addition of such language would ordinarily be both unnecessary
and confusing. Accordingly, we decline to adopt, as an
alternative reading of the checks, either (1) that they were
payable to the Estate and Mrs. Kenerson and Fairbanks, or (2)
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that they were payable to the Estate or Mrs. Kenerson or
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Fairbanks. Nor does the absence of punctuation (whether a comma
or a semicolon) between the first and second lines, strengthen
significantly the argument for some alternative reading. Placing
the name of the first named administrator on a separate line,
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below the line on which the name of the Estate appeared and above
the line on which "John C. Fairbanks Administrators" appeared,
conveyed the message that she and the individual named on the
next line, with "&" between them, were named as administrators
and not as individuals.
Second, we need not explore whether it would make a
difference if Jean R. Kenerson had been named individually as a
payee. She was not so named. Even the checks on which "Admin"
rather than "Administrators" appeared are not subject to
interpretation as naming her in her individual capacity. That
reading is rebutted by the sequence in which the names
appear -- on the first line, the Estate; on the second line,
"Jean R. Kenerson"; and on the third line, "John C. Fairbanks
Admin." If only Fairbanks were being named as administrator,
common sense would reject the use of a sequence in which his name
and designation as administrator were separated from the name of
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the estate by the name of another payee who was meant to be named
only individually.
Third, if we were to adopt the proposed interpretation
of the statute, the result would be to give no effect to the
drawer's manifested intent in naming the individuals as
administrators only and not as individuals.
For all these reasons, we conclude that 3-110(1)(e)
does not apply to this case. Thus, the trial court erred when it
read the checks as instruments controlled by 3-110(1)(e) rather
than instruments controlled by 3-116(b) and 3-117(b). These
sections together made plaintiff's indorsement essential to the
proper negotiation of the checks under 3-202(1). Absent proper
negotiation, payment to Fairbanks was not "payment . . . to the
holder" under 3-603.
Our conclusion derived from the text of the statute
itself, absent New Hampshire case law in point, is confirmed by
our examination of interpretations of the U.C.C. by the courts of
other states and a respected commentator.
A recent decision of the Massachusetts Supreme Judicial
Court is closely analogous. In GMAC v. Abington Casualty
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Insurance Co., 602 N.E.2d 1085 (Mass. 1992), the defendant issued
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to an individual a physical damage insurance policy covering a
motor vehicle that the individual had purchased. Plaintiff GMAC
was the holder of a security interest in the vehicle and was a
loss payee beneficiary of that policy. When the vehicle
sustained damage, defendant Abington issued a check payable to
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the order of the individual and GMAC. The check was delivered to
the individual, who presented it to the drawee bank without
GMAC's indorsement; the individual received full payment, and
GMAC received none of the proceeds. The Supreme Judicial Court
("SJC") held that the payee, GMAC, could proceed against the
drawer on the underlying contract claim, or under 3-804. Id. at
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1088-89.
The SJC specifically observed that suit under 3-804
was not barred by 3-603 because the individual who cashed the
check without GMAC's indorsement "was never a holder of the
check." Id. at 1089. Since GMAC was named as a co-payee,
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according to 3-116(b) the check could not be discharged by the
individual payee acting alone. Id. at 1087-88. The SJC also
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relied on 3-603, observing that without GMAC's indorsement, the
purchaser of the vehicle could not have taken the check by
negotiation and thus did not become a holder under 3-202(1).
Id. at 1088. Without payment to a holder, the liability of
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defendant was not discharged under 3-603. Id. In relation to
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this issue, the case before us is in all material respects like
GMAC v. Abington, though different in details not material to
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this issue. It is true that the SJC observed that GMAC and
Abington were "not in an agency relationship," id. at 1087, and
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appellees in this case have argued that Fairbanks was an agent
for plaintiff. We hold, however, that in the absence of any
evidence that plaintiff actually or apparently authorized
Fairbanks to indorse and negotiate checks on her behalf, he was
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not an agent for indorsing and negotiating the Dean Witter
checks. Thus, the present case, like GMAC v. Abington, is one in
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which for these purposes the payees were "not in an agency
relationship." Id. at 1087.
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In other but closely analogous circumstances, courts
and commentators have adopted the same reasoning and come to the
same conclusion as we do, namely, that payment on a missing or
forged indorsement does not discharge a party from liability.
White and Summers address, for example, the situation in which a
thief, rather than a co-payee, steals order paper and forges the
payee's indorsement. The thief who steals order paper cannot
qualify as a holder, and the thief's signature is not an
indorsement. White & Summers, 680 n.7. Subsequent takers, also,
will not be holders. Id. at 680. Thus, when the drawee or maker
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pays the presenter, the payor will not have paid a holder, no
discharge under 3-603 will have occurred, and the original owner
can recover on the stolen instrument under 3-804 or on the
underlying obligation. Id.
___
The same result holds where an indorsement is missing,
rather than forged. In a suit by the drawee bank against the
collecting bank for accepting a check with a missing indorsement,
a California appeals court noted that "[w]hen a check is made
payable to two payees jointly, only proper negotiation, i.e.,
endorsement by both, results in the payment contemplated" by 3-
603. Feldman Construction Co. v. Union Bank, 104 Cal. Rptr. 912,
________________________ __________
914 (Cal. Ct. App. 1972). That court also relied on 3-201,
-20-
20
defining a holder, and 3-202, defining proper negotiation.
It may be suggested that cases holding that a co-payee
who absconds with funds is not a holder appear to be inconsistent
with 3-603's reference to a "party who in bad faith pays or
satisfies a holder who acquires the instrument by theft or who
____________________________________________________
. . . holds through one who so acquired it." R.S.A. 382-A:3-
____________________________________________
603(1)(a) (emphasis added). The meaning of holder as it is used
in this instance, appears, however, to be a deviation from the
definition of the term in 1-201(20). Reading 3-603 together
with 1-201(20), 3-202(1), and 3-116(b), one is driven to the
conclusion that payment to a thief does not constitute payment to
a holder for the purpose of discharge under 3-603.
B.
B.
The trial court also relied on Protective Check Writers
________________________
Co. v. Collins, 23 A.2d 770 (N.H. 1942), interpreting that
___ _______
opinion as standing for the unqualified proposition (referred to
here as the "single-entity rule") that the acts of one co-
representative of an estate -- namely, Fairbanks -- are treated
in law as the acts of the other -- namely, plaintiff. It is
unclear whether the trial court, in its citation to the single-
entity rule, meant that only Fairbanks' signature was necessary
to negotiate the checks, or instead meant that under this rule
Fairbanks was authorized to sign the indorsement of his co-
administrator, plaintiff.
To the extent that the trial court meant the former, we
-21-
21
have already rejected the argument that under New Hampshire law
Dean Witter was relieved of liability by paying on only one
effective indorsement where two were required. Even if
Protective Check Writers can properly be interpreted as standing
________________________
for the proposition that fewer than all co-administrators may
negotiate an instrument made payable to all of them
together -- and we do not decide whether it does -- it would be
displaced by the provisions of the later-enacted statute.
To the extent that the trial court relied on Protective
__________
Check Writers for the proposition that Fairbanks, as
_______________
administrator, was authorized in law to sign the indorsement of
plaintiff, his co-administrator, we conclude that the statute
displaces that purported rule also, even if we assume it did
exist (in the form assumed by the trial judge) in earlier New
Hampshire law.
In analyzing the relationship between the statute and
the common law that existed before its enactment, we start with
not only the guidance of Town of Wolfeboro and Petition of Jane
_________________ _________________
Doe, supra, but as well the legislative mandate that "unless
___ _____
displaced by the particular provisions of this chapter the
principles of law and equity . . . shall supplement its
provisions." See R.S.A. 382-A:1-103. Construing sections of the
___
statute in combination, as we must under Petition of Jane Doe, we
____________________
conclude that 3-116(b) and 3-117(b) leave no room for operation
of the single-entity rule regarding commercial instruments.
The statute is premised on an assumption that an
-22-
22
instrument may be made payable to an estate, see R.S.A. 382-A:3-
___
110(1)(e), or its fiduciaries, see R.S.A. 382-A:3-117(b).
___
Although both clauses are worded in the singular
("representative" in 3-110(1)(e), "named person" in 3-117(b)),
and the illustrations in the comment to 3-117(b) include only
one fiduciary, words in the singular number include the plural.
See R.S.A. 382-A:1-102(5)(a). We need not decide, and do not
___
decide, whether, under 3-110(1)(e) and other relevant
provisions, a check made payable to an estate alone can be
negotiated on the indorsement of just one of its administrators.
Where, however, a check is payable to two named administrators,
not in the alternative, 3-116(b) declares that the instrument is
payable to the two fiduciaries together, and is negotiable only
by the two together. It would render 3-116(b) a nullity, at
least with respect to checks made payable to co-administrators of
estates, to hold that one of two or more co-administrators can,
as a matter of law, sign the indorsements of fellow
administrators and proceed to negotiate what is "negotiable only
by all of them." Thus, 3-117(b) and 3-116(b), considered
together, displace the common law single-entity rule.
Appellees rely on a commentator's suggestion that the
problem of who can indorse an instrument made payable to several
administrators "will depend, as it did under prior law, on
whether one personal representative has authority to act on
behalf of the others . . . ." See Anderson, UCC 3d 3-116:31.
___
His premise, that "[t]he Code makes no provision in this
-23-
23
respect," however, is subject to question. Perhaps it may be
said that the Code does not do so in any single provision. But
the Code, as just noted, explicitly allows for instruments
payable to several persons together, and we see no reason not to
apply 3-116 when the "persons" are individuals named in their
capacity as fiduciaries.
The rules of construction stated in the statute itself
further strengthen this interpretation. The statute declares
that it is to be "liberally construed and applied to promote its
underlying purposes and policies." R.S.A. 382-A:1-102(1). One
purpose of the statute is to "simplify, clarify and modernize the
law governing commercial transactions." R.S.A. 382-A:1-
102(2)(a). Appellees have offered no reason to infer that, due
to policy considerations unique to the administration of estates,
either the drafters of the U.C.C. or state legislatures
(including that of New Hampshire), in proposing and adopting 3-
116(b) and 3-117(b), manifested an intent to leave intact a
common law single-entity rule, in those states where it existed
or where no precedent existed one way or the other. Furthermore,
though some recent cases in other jurisdictions continue to cite
the single-entity rule, see, e.g., Holmes v. Lankenau Hospital,
___ ____ ______ _________________
627 A.2d 763, 768 (Penn. Sup. Ct. 1993), a growing body of
authority in the field of probate law (even if still a minority)
rejects the rule. See Unif. Probate Code 3-717, 8 U.L.A. 340
___
(1983) ("If two or more persons are appointed co-representatives
and unless the will provides otherwise, the concurrence of all is
-24-
24
required on all acts connected with the administration and
distribution of the estate.").
Our conclusion that the statute should be read as not
preserving any purportedly pre-existing single-entity rule is
further supported by the lack of any showing that this rule was
ever firmly embedded in New Hampshire law. Appellees cite only
one New Hampshire case, Protective Check Writers, supra, in
__________________________ _____
support of their contention that the single-entity rule was and
is now a part of New Hampshire law. The cited passage from
Protective Check Writers, however, is a passing reference, not
_________________________
essential to the basis of the decision, without citation to any
other case, either in New Hampshire or elsewhere.
The reference to the single-entity rule in the
Protective Check Writers opinion was made in the process of
_________________________
explaining the holding that each co-representative of an estate
is liable for his or her own wrongdoing. 23 A.2d at 772. The
court thus had no reason to be concerned with the very different
question whether one co-representative has authority to bind the
estate by action taken without the approval or even knowledge of
the other. Moreover, the opinion in that case explicitly called
attention to the fact that (1) "both administrators [in that
case] were equally participants" in the transaction at issue, 23
A.2d at 772 ("making payments"), and (2) the issue before the
court "was only the chargeability of Mrs. Ney, leaving [the
chargeability] of her co-administrator undetermined." Id. We
___
conclude that Protective Check Writers does not support the
_________________________
-25-
25
proposition for which appellees cite it.
Appellees suggested in oral argument that the lack of
reported New Hampshire cases regarding the single-entity rule
indicates that the rule was so taken for granted by the New
Hampshire bar that it was not the subject of litigation, or, more
precisely, litigation that culminated in a reported opinion. The
suggestion is unpersuasive in view of divided authority elsewhere
and the interest litigants would have in presenting the issue in
any case where it would be likely to affect the outcome.
Finally, even if we were to assume, for the sake of
argument, that New Hampshire had adopted the single-entity rule
at a time before the New Hampshire legislature enacted the
commercial code, this case falls within one of the "equitable
exceptions" to the rule to which the opinion in Protective Check
________________
Writers referred. See id., 23 A.2d at 772. Because the rule
_______ ___ ___
itself was not in issue, the court did not explain what these
exceptions might be. The equities in the case before us would
weigh strongly toward recognition of an exception, even if the
single-entity rule were assumed to be part of the current law of
New Hampshire.
For the foregoing reasons, we conclude that we cannot
determine that under the law of New Hampshire the trial court
summary judgment for Dean Witter can be sustained on the basis of
3-603 and Protective Check Writers.
________________________
-26-
26
C.
C.
Even though payment to Fairbanks was not payment to a
"holder" for purposes of 3-603, we conclude that Dean Witter is
relieved of liability by a common law rule of agency that, we
conclude, has been and continues to be part of the law of New
Hampshire as in other jurisdictions.
According to the Restatement (Second) of Agency,
______________________________
If an agent who is authorized to receive
a check payable to the principal as
conditional payment forges the
principal's endorsement to such a check,
the maker is relieved of liability to the
principal if the drawee bank pays the
check and charges the amount to the
maker.
Restatement (Second) of Agency 178(2) (1958). Although the
________________________________
Restatement refers to a "maker" rather than a "drawer," it is
evident from the reference to a "drawee bank" that the rule
applies to a drawer. No reported New Hampshire case has
considered this rule. The modern trend in other jurisdictions,
however, is consistent with the Restatement. Also, jurisdictions
that have considered the question since enactment of the U.C.C.
have held that this rule of the common law of agency survives
under the U.C.C.
Several cases have involved circumstances in which an
attorney forged a client's indorsement on a check received from
an alleged tortfeasor or the tortfeasor's insurance company in
settlement of the client's tort claim.
See Terry v. Kemper Insurance. Co.,
___ _____ ______________________
456 N.E.2d 465, 466-468 (Mass. 1983)
(transfer to attorney, who was claimant's
-27-
27
agent, of draft in the amount of claim
drawn on account with sufficient funds,
was "payment" within meaning of statute
providing that unpaid party could
commence action in contract for payments
due over 30 days even though attorney
forged client's indorsement);
Navrides v. Zurich Insurance Co., 488
________ _____________________
P.2d 637, 642-646 (Calif. 1971)
(Restatement rule absolved defendant of
all liability to plaintiff);
Hutzler v. Hertz Corp., 347 N.E.2d
_______ ____________
627, 630-32 (N.Y. 1976) (in action for
negligence of drawer, tortfeasor's
obligation to claimant was discharged);
Clarkson v. Selected Risks Insurance
________ _________________________
Co., 406 A.2d 494, 497-98 (N.J. Sup. Ct.
___
1979) (defendant fulfilled insurance
contract obligation and was not liable
for negligence for forwarding settlement
check to attorney who then forged
client's indorsement);
see also Liberty Mutual Insurance Co.
___ ____ _____________________________
v. Enjay Chemical Co., 316 A.2d 219, 222-
__________________
226 (Del. Sup. Ct. 1974) (adopting
Restatement rule but not considering its
relationship to U.C.C.; holding that
defendant's payment of royalties to
plaintiff's employee, who embezzled the
funds, satisfied contractual obligation
of royalty payment).
In each case, upon determining that the attorney was an agent of
the plaintiff who was authorized to receive the check drawn by
defendant to plaintiff (and in some cases to the attorney as
well), the court applied the rule as stated in the Restatement.
In the absence of some explicit showing to the contrary,
authority of a co-payee to receive a check seems apparent. Cf.
__
Muzzy v. Rockingham County Trust Co., 113 N.H. 520, 523-24, 309
_____ ____________________________
A.2d 893, 895 (1973) (holding bank's delivery to husband of draft
payable to husband and to wife together not actionable by wife
because each, as co-payee, was entitled to possession). In this
-28-
28
case, appellant concedes in her reply brief that Fairbanks was
authorized to receive the Dean Witter checks on her behalf (in
her capacity as administrator, we infer). She contends that the
Restatement rule is not a good rule of law, and is moreover
inconsistent with the U.C.C.
Appellant cites to jurisdictions that she claims have
repudiated, at least implicitly, the common law rule.
See Morris v. Ohio Casualty Insurance
___ ______ ________________________
Co., 517 N.E.2d 904, 910 (Ohio 1988);
___
Smith v. General Casualty Co. of
_____ ___________________________
Wisconsin, 394 N.E.2d 804, 806-807 (Ill.
_________
App. Ct. 1979);
Tormo v. Yormark, 144 U.C.C. Rep.
_____ _______
Serv. 962, 967-972 (D.N.J. 1974).
Only one of these courts, however, considered the rule; the
others did no more than come to conclusions that the appellant
argues are inconsistent with the rule. In fact, the results in
these cases are entirely consistent with the common law rule
stated in the Restatement. See Florida Bar v. Allstate Ins. Co.,
___ ___________ _________________
391 So. 2d 238, 241 n.6 (Fla. App. 1981) (so reasoning). The
cases concern the liability of insurance companies that, though
both drawers and drawees (because they issue "payable through"
checks and must approve the collecting banks' payment on them),
are sued in their status as drawees.
See Morris, 517 N.E.2d at 910;
___ ______
Smith, 394 N.E.2d at 806;
_____
Tormo, 144 U.C.C. Rep. Serv. (West) at 968 & n.6.
_____
Dean Witter, of course, is not a drawee.
Some jurisdictions, at one time at least, declined to
apply the Restatement rule to a drawer.
-29-
29
See M. Feitel House Wrecking Co. v.
___ ______________________________
Citizens' Bank & Trust Co., 106 So. 292
___________________________
(La. 1925);
Lawrence J. Kern, Inc. v. Panos, 177
_______________________ _____
So. 432 (La. App. 1937);
Hart v. Moore, 158 So. 490 (Miss.
____ _____
1935);
compare Rodgers v. Fleming, 188 A. 861
_______ _______ _______
(Penn. 1937) (noting, but not holding,
that drawer remains liable to a payee
when check indorsement is forged)
with Zidek v. West Penn. Power Co., 20
____ _____ ____________________
A.2d 810 (Penn. Super. 1941) (holding
plaintiff bound by settlement concluded
by her attorney though attorney had
forged her indorsement to the joint payee
check and taken proceeds).
Louisiana's decision not to discharge drawers of liability was
necessary to preserve a remedy for aggrieved payees, since that
jurisdiction, unlike New Hampshire, did not provide payees a
cause of action against drawees and collecting banks. In any
event, these decisions are unpersuasive in the face of carefully
reasoned, recent decisions to the contrary by the highest courts
of California, Massachusetts, and New York, see supra, and an
___ _____
array of added authorities.
See, e.g., Strickland Transp. Co. v.
___ ____ _______________________
First State Bank of Memphis, 214 S.W.2d
_____________________________
934, 938 (Tex. 1948);
Franciscan Hotel Co. v. Albuquerque
______________________ ___________
Hotel Co., 24 P.2d 718, 726 (N.M. 1933);
_________
Mills v. Hurley Hardware & Furniture
_____ _____________________________
Co., 196 S.W. 121, 121-22 (Ark. 1917);
___
McFadden v. Follrath, 130 N.W. 542,
________ ________
544 (Minn. 1911);
Patterson v. Southern Ry. Co., 151
_________ _________________
S.E. 818, 819 (Ga. App. 1930);
Indemnity Mutual Marine Assurance Co.
______________________________________
v. Powell & O'Rourke Grain Co., 271 S.W.
____________________________
538, 539-40 (Mo. App. 1925).
Many of these court decisions advance cogent reasons
for the position that one who authorizes an agent to receive a
-30-
30
check should bear the risk that the agent is corrupt. Having
chosen the agent in the first place, the principal is in a better
position to prevent the loss than the drawer, who has had no say
in the selection of the agent.
Navrides, 488 P.2d at 643-44 (citation
________
omitted);
Hutzler, 347 N.E.2d at 631.
_______
To ask of commercial actors that they inspect every canceled
check after it returns from the drawee bank for possible forgery
"would make payment by check a matter of uncertainty and some
risk."
Navrides, 388 P.2d at 645 (citation
________
omitted);
see also Hutzler, 347 N.E.2d at 630-31
___ ____ _______
(same).
It would be extremely expensive for business entities to look at
the back of each returned check; it would be even more difficult
for them to determine if the indorser was authorized by the
creditor to indorse the particular check in question.
Liberty Mutual Insurance Co., 316 A.2d at
____________________________
224.
Thus, a clear majority of the courts considering the
issue have concluded that it is better to hold a creditor
responsible for the choice of agent than to impose a burden on
drawers that will raise the cost of commercial transactions. The
result is not unduly harsh on the defrauded creditor, for whom a
remedy is ordinarily available -- pursuing an action for
conversion against the drawee bank. See Hutzler, 347 N.E.2d at
___ _______
632.
-31-
31
Appellant contends that the common law rule was
displaced by UCC Articles 3 and 4. The U.C.C. provides, however,
that "[u]nless displaced by the particular provisions of this
chapter the principles of law and equity, including . . . the law
relative to . . . principal and agent . . . shall supplement its
provisions." R.S.A. 382-A:1-103. We conclude that the U.C.C.
and the New Hampshire statute do not displace the common law
agency rule.
The U.C.C. and the New Hampshire statute do not contain
"particular provisions" that provide for a cause of action by a
payee against a drawer where a co-payee forges the payee's name
and alone obtains the proceeds. Daniel E. Murray, Joint Payee
___________
Checks--Forged and Missing Endorsements, 78 Comm. Law J. 393, 399
_______________________________________
(1973). Section 3-804, it is true, allows a cause of action to
be maintained by a payee against a drawer even when the payee
does not qualify as a holder. Operation of that section,
however, is based on the stated premise that the defendant drawer
of the instrument is "liable thereon." Thus, 3-804 does not
"displace" common law rules, such as the rule of agency at issue
here, that are relevant to determining the liability of the
drawer.
The Supreme Judicial Court of Massachusetts has
explicitly come to the same conclusion. In Terry v. Kemper,
_____ ______
supra, the court adopted the Restatement rule as the law of
_____
Massachusetts. A decade later, it held that a payee could sue a
drawer -- under 3-804 or on the underlying contractual
-32-
32
obligation -- where the instrument was drawn to the plaintiff and
a co-payee and the drawer delivered the instrument to the co-
payee, who absconded with the plaintiff's funds. See GMAC v.
___ ____
Abington Casualty Insurance Co., supra. In GMAC, the court
_________________________________ _____ ____
distinguished Terry v. Kemper, because that case was one in which
_____ ______
the absconding co-payee was authorized by the plaintiff to
__________
receive the check on his behalf. 602 N.E.2d at 1087. Thus, the
SJC reasoned that there was no inconsistency between recognizing,
in general, a payee's cause of action against a drawer under 3-
804, and barring such an action where the instrument is delivered
to an authorized agent.
There is another, perhaps more plausible argument that
3-116(b) and 3-404 "displace" the common law rule in question.
Section 3-116(b), the argument goes, requires the signatures of
both principal and agent where they are both named as co-payees,
as in this case. Section 3-404 provides that "[a]ny unauthorized
signature is wholly inoperative as that of the person whose name
is signed unless he ratifies it or is precluded from denying it."
3-404(1). Appellant contends that the forged signature of a
principal is "wholly inoperative," and therefore does not excuse
the drawer from liability to the principal even after the drawer
paid on the forged instrument that it delivered to the agent.
See Muzzy v. Rockingham County Trust
___ _____ ________________________
Co., 113 N.H. 520, 523, 309 A.2d 893, 895
___
(1973) (holding that where wife, without
husband's authorization, signed husband's
indorsement on draft, the instrument was
defective under both 3-404 and 3-116);
Morris, 517 N.E.2d at 909 (noting that
______
under 3-404 an unauthorized signature
-33-
33
does not relieve drawer of obligation to
pay payee).
Several jurisdictions that have adopted the Restatement rule,
however, have explicitly held that these sections do not displace
the rule.
See Terry, 456 N.E.2d at 467 ( 3-116(b)
___ _____
and 3-404);
Hutzler, 347 N.E.2d at 630-32 ( 3-404);
_______
Navrides, 488 P.2d at 643-646 ( 3-116(b)
________
and 3-404);
Clarkson, 406 F.2d at 498 ( 3-116(b) and
________
3-404).
Indeed, it might plausibly be argued that 3-404 should be
interpreted as allowing for the possibility that a person whose
name is forged on an instrument by his agent is, by his unwise
selection of the agent, "precluded from denying" the unauthorized
signature. See Hutzler, 347 N.E.2d at 621 (stating that the
___ _______
court would, in principle, so hold). In any event, all of the
jurisdictions that have considered whether that section or 3-
116, or both together, displace the common law rule have
concluded that they do not.
We conclude that summary judgment for Dean Witter is
appropriate on the ground that appellant's action is barred by a
rule of the common law of agency that remains a part of New
Hampshire law after enactment of the commercial code by the New
Hampshire legislature.
IV.
IV.
Before the trial court, plaintiff claimed that drawee
Banks were liable to her for conversion under 3-419(1)(c), which
-34-
34
treats an instrument as converted when "it is paid on a forged
indorsement." The Banks moved for summary judgment on the ground
that Fairbanks' indorsement was valid and sufficient to justify
their payment of the checks. The Banks relied on 3-301,
defining the rights of a holder as follows:
The holder of an instrument whether or
not he is the owner may transfer or
negotiate it and, except as otherwise
provided in Section 3-603 on payment or
satisfaction, discharge it or enforce
payment in his own name.
The trial court agreed that Fairbanks was a holder of the checks
and could rightfully negotiate them with his indorsement alone,
even though he forged Mrs. Kenerson's indorsement.
A.
A.
As explained in Part III.A., Fairbanks was not a holder
for the purpose of discharge of drawer liability under 3-603.
______
Here, the question presented is whether Fairbanks, acting alone,
could exercise the powers of a holder under 3-301 in a manner
that would discharge drawees of liability. We conclude here,
_______
also, that Fairbanks could not, acting alone, exercise the powers
of a holder -- in this instance for the purpose of invoking 3-
301. See GMAC, 602 N.E.2d at 1087 (considering 3-301 in
___ ____
reasoning to the conclusion that the co-payee who took payment on
an instrument not signed by the other payee was not a holder).
As explained above, this is the only reading consistent
with other applicable statutory provisions. A holder's power of
"negotiation" of an instrument under 3-301 depends, under 3-
-35-
35
202(1), upon the holder's having obtained all "necessary"
indorsements. In this case, as we have already established, 3-
116(b) renders "necessary" the signatures of both co-payees, in
their fiduciary capacities. Indeed, to conclude that Fairbanks
could alone negotiate the checks under 3-301 would practically
nullify 3-116(b). The district court thus erred as a matter of
law in granting summary judgment for the Banks based on 3-301.
It follows, as well, that the district court erred to
the extent that it relied on Jones v. Van Norman, 522 A.2d 503
_____ __________
(Pa. 1987), in holding that defendant Banks are not liable under
3-419(1)(c). In Jones, the agent was authorized to indorse her
_____
principal's name to the checks she received for her principal and
to deposit them in her principal's bank account. Id. at 505.
___
The court decided that, because the indorsements were authorized,
they could not be the equivalent of forgeries for purposes of 3-
419(1)(c), even though the agent misappropriated the proceeds of
the checks.
In the present case, the Banks did not argue to the
trial court, or to this court, that plaintiff authorized
Fairbanks to indorse the checks; they rely, rather, on an
assertion that he had inherent authority to do so. As just
observed, however, Fairbanks' status as copayee did not confer on
him authority to cash the checks without plaintiff's indorsement,
or with a forged indorsement purporting to be hers. Similarly,
his status as attorney and agent of Mrs. Kenerson for other
purposes did not clothe him with authority to indorse the checks
-36-
36
in her name.
See Florida Bar v. Allstate Insurance
___ ___________ __________________
Co., 391 So. 2d 238, 240 (Fla. App. 1981)
___
(adopting, in action for conversion where
attorney forged client's indorsement on
settlement check, the "majority" rule
that an attorney specifically authorized
to compromise a claim and collect the
proceeds may not indorse the client's
name on a check or draft tendered to
effect the settlement);
Morris v. Ohio Casualty Insurance Co.,
______ ___________________________
517 N.E.2d 904, 908 (Ohio 1988) (adopting
this as "the better rule").
Finally, we have already rejected the argument that his status as
co-administrator clothed Fairbanks with such authority.
Consequently, Jones v. Norman is inapposite.
_____ ______
B.
B.
Appellee Banks offer two alternative grounds for
concluding that appellant cannot maintain a suit for conversion
under 3-419. Neither, however, is sufficient to sustain summary
judgment for the Banks.
The Banks first contend that plaintiff cannot satisfy
3-419's requirement that a payee demonstrate that the
instruments in question were delivered to her, because plaintiff
never obtained physical possession of the checks.
No New Hampshire court has addressed the existence and
scope of the delivery requirement under 3-419(1)(c). We do not
rest our decision on the New Hampshire legislature's revision of
the statute, which now requires delivery to the payee before the
payee can sue in conversion, see R.S.A. 382:3-420(a)(ii), because
___
-37-
37
it took effect after this dispute arose.
We assume, as an initial matter, that the New Hampshire
Supreme Court would find an implicit delivery requirement in 3-
419 and that it would recognize "constructive delivery." Most
jurisdictions hold that a payee cannot recover from the
collecting bank that pays on a forged indorsement if the check
was never delivered to the payee. Papex Intern. Brokers v. Chase
_____________________ _____
Manhattan Bank, 821 F.2d 883, 885 (1st Cir. 1987). Papex and
______________ _____
other decisions cited by defendant drawees concern the collecting
__________
bank's liability in conversion rather than the drawee bank's
______
liability in conversion; however, this difference seems unlikely
to be material to a delivery requirement. In any event,
appellant concedes in her reply brief that the delivery
requirement applies to suits against drawees as well and we
assume, without deciding, that this is an accurate statement of
New Hampshire law.
Some courts recognize a constructive delivery where an
intended delivery is thwarted, but a premise of invoking this
rule is a showing, at minimum, that the drawer surrendered the
instrument to the power of the payee or to some third person for
the payee's use.
Id. at 886;
___
see also Lincoln Nat. Bank & Trust Co.
___ ____ _____________________________
v. Bank of Commerce, 764 F.2d 392, 398
_________________
(5th Cir. 1985) ("actual or constructive
delivery of the checks must occur").
In particular, delivery to a co-payee or agent of the payee has
generally been assumed by courts to constitute constructive
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delivery.
See, e.g., United States v. Bankers
___ ____ _____________ _______
Trust Co., 17 UCC Rep. Serv. 136
___________
(E.D.N.Y.1975) (delivery to copayee);
Burks Drywall v. Washington Bank &
______________ __________________
Trust Co., 442 N.E.2d 648 (Ill. App.
__________
1982) (delivery to copayee or agent);
Thornton & Co. v. Gwinnett Bank &
________________ ________________
Trust Co., 260 S.E.2d 765 (Ga. App. 1979)
_________
(delivery to agent);
see also J. White & R. Summers,
___ ____
Uniform Commercial Code, 15-5, at 757 &
_______________________
n.8 (3d ed. 1988) (delivery to co-payee,
on grounds that co-payee is agent of
__
other co-payees).
The appellee Banks contend categorically in this case
that the checks were never delivered to plaintiff. It is
undisputed that plaintiff did not physically receive the checks,
and the appellees also maintain that delivery to Fairbanks did
not constitute constructive delivery to her. They insist, in
particular, that appellant is foreclosed from arguing
constructive delivery because such an argument contradicts her
other contention that Fairbanks was not her agent with respect to
negotiating the checks; and that, as a matter of law, delivery to
the forger is not sufficient for 3-419.
Appellant responds that physical delivery of the checks
to Fairbanks, the forger, amounted to constructive delivery to
her on two grounds -- that he was a co-payee of the checks, and
that he was authorized as her attorney to receive them for her.
We conclude that appellant has the better of the Banks
on this question. It has already been established in an earlier
portion of this opinion that Mrs. Kenerson and Fairbanks were co-
payees in their capacity as co-administrators. Appellant
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conceded in another context, moreover, see supra, that Fairbanks
___ _____
was authorized to receive checks on her behalf, even though he
was not authorized to indorse her signature. There is no
contradiction in an attorney's being authorized to receive checks
for a client, without being authorized to indorse the checks.
See Morris, 517 N.E.2d at 980 ("The
___ ______
authority to receive a negotiable
instrument on behalf of a client does not
imply the power to endorse it.");
Florida Bar, supra.
___________ _____
Moreover, there is authority for the proposition that a co-payee,
like an employee, is an agent of the other co-payees for the
__
purpose of receiving the check. See White & Summers, at 757. In
___
any event, if the agent receives the check, as co-payee or
otherwise, and the agent procures payment over the forged
indorsement of the payee, then the payee has a right to recover
in conversion. White & Summers, at 757. This is a "conventional
[case], grist for the check theft mill." Id.
___
The Banks' second proffered basis for holding that 3-
419 does not afford Mrs. Kenerson a remedy is that the checks
reached their intended payee. It is quite true that no
conversion occurs where the owner of a forged instrument receives
the proceeds despite the forgery. Atlantic Bank of New York v.
_________________________
Israel Discount Bank, Ltd., 441 N.Y.S.2d 315, 317 (N.Y. App.
____________________________
1981). But "it cannot be said that the monies reached their
intended destination when one intended beneficiary, the
plaintiff, was deprived of any incident of ownership." True v.
____
Fleet Bank, 138 N.H. 679, 645 A.2d 671 (N.H. 1994).
__________
-40-
40
In True, plaintiff sued the drawee bank for conversion
____
of the proceeds of a settlement check payable to plaintiff and
her attorney; her attorney, without authorization, indorsed her
name upon and deposited the check in a trust account. 645 A.2d
at 671. The New Hampshire Supreme Court rejected defendant's
contention that the funds reached their intended destination when
they were deposited in an interest-bearing trust account for the
benefit of plaintiff. Id. at 672. The court reasoned that "when
___
the defendant accepted the two-party check without the
plaintiff's indorsement, it deprived her of her rights of
ownership and placed the funds beyond her control." Id.
___
As we have already held that the checks in this case
were payable to the co-administrators together, they were "two-
party" checks as that term was used in True. We can see no way in
____
which this case is materially different from True. Furthermore,
____
appellees' contention -- that the checks reached their intended
destination because they were deposited in the Estate
account -- is merely another formulation of their argument,
rejected above, that the checks were payable to the Estate,
rather than to Fairbanks and plaintiff together as co-
administrators of the Estate.
Thus, no funds other than those that the district court
determines on remand in fact reached plaintiff's hands--
including, but not necessarily limited to, the $20,000 to which
she admits receiving--reached the intended payee.
-41-
41
C.
C.
The final argument advanced by the Banks is that
appellant's action for conversion is barred by her own negligence
respecting the forgeries. The Code expressly provides for a
negligence defense in defined circumstances:
Any person who by his negligence
substantially contributes to a material
alteration of the instrument or to the
making of an unauthorized signature is
precluded from asserting the alteration
or lack of authority . . . against a
drawee or other payee who pays the
instrument in good faith and in
accordance with the reasonable commercial
standards of the drawee's or payor's
business.
R.S.A. 382-A:3-406.
The proffer of evidence before the trial court by
appellee Banks in support of their motion for summary judgment
fell short of meeting their burden of showing that no reasonable
factfinder could find that they had failed to prove by a
preponderance of the evidence that plaintiff was negligent and
that her negligence "substantially contribute[d] . . . to the
making of an unauthorized signature."
We do not address what are the appropriate elements of
a defense under 3-406 because that is a question better
addressed in the first instance by the trial court, to which we
remand for reasons explained below.
D.
D.
Appellee Banks assert that summary judgment for
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42
appellant is inappropriate even if all legal issues are decided
in her favor. The Banks have failed to identify precisely any
disputed fact that is material to plaintiff's claim. We are
concerned, however, that the trial court's erroneous allowance of
the Banks' motion for summary judgment may have distracted
attention from the fact that if the Banks wanted to press their
contention, in the alternative, that the 3-406 defense should go
to the factfinder, the Banks were entitled to a reasonable
opportunity to proffer evidence that would support such a finding
of fact. On the record before us, it is not clear that the Banks
were appropriately notified that summary judgment might be
entered against them as to this defense absent a proffer of
admissible evidence to show the existence of a material dispute
of fact on this issue. Thus, we will vacate the trial court's
rulings on the cross-motions for summary judgment as to the
Banks' liability and remand for such further proceedings, if any,
as the district court deems appropriate before entry of final
judgment.
The judgment of the district court for Dean Witter is
affirmed.
________
The judgment of the district court awarding summary
judgment for Morgan Guaranty Trust Company and Bank of
California, N.A., and denying plaintiff summary judgment as to
liability against those parties, is vacated. The case is
_______
remanded for any further proceedings, consistent with this
________
Opinion, the district court deems necessary and final disposition
-43-
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accordingly.
Costs as to the claims against Dean Witter are awarded
to Dean Witter against Kenerson. Costs as to claims against the
Banks are awarded to Kenerson against the Banks.
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