Kenerson v. FDIC

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 94-1537

JEAN R. KENERSON,
ADMINISTRATRIX OF THE ESTATE
OF VAUGHAN H. KENERSON,
Plaintiff - Appellant,

v.

FDIC, ET AL.,
Defendants - Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Shane Devine, U.S. District Judge]

Before

Torruella, Chief Judge,

Coffin, Senior Circuit Judge,

and Keeton,* District Judge.

Cordell A. Johnston, with whom Bradford W. Kuster and Orr

and Reno, P.A. were on brief for appellant.

Irvin D. Gordon, with whom William D. Pandolph and Sulloway

& Hollis were on brief for appellee Dean Witter Reynolds Inc.

Emily Gray Rice, with whom Broderick & Dean, P.A. was on

brief for appellees Bank of California, N.A. and Morgan Guaranty
Trust Company.

January 5, 1995

* Of the District of Massachusetts, sitting by designation.

KEETON, District Judge. This case arises from the

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

Construction Co. v. Union Bank, 104 Cal. Rptr. 912, 913 (Cal.

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

though he did not have authority to indorse them with plaintiff's

signature and then negotiate them, summary judgment for drawer

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

Regina College v. Russell, 499 U.S. 225, 239 (1991) (courts of

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

Wolfeboro v. Smith, 556 A.2d 755, 756-57 (N.H. 1989). We take

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,

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

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.

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

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-

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

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)

& 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

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,

trust or fund" as possible "person[s]" that could qualify as

payees); see also Equipment Distributors v. Charter Oak Bank, 379

A.2d 682 (Conn. App. Sess. 1977) (two business entities); Alumax

Aluminum Corp. v. Norstar Bank, N.A., 572 N.Y.S.2d 133 (A.D.4

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

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)

that they were payable to the Estate or Mrs. Kenerson or

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,

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

Insurance Co., 602 N.E.2d 1085 (Mass. 1992), the defendant issued

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

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,

according to 3-116(b) the check could not be discharged by the

individual payee acting alone. Id. at 1087-88. The SJC also

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

defendant was not discharged under 3-603. Id. In relation to

this issue, the case before us is in all material respects like

GMAC v. Abington, though different in details not material to

this issue. It is true that the SJC observed that GMAC and

Abington were "not in an agency relationship," id. at 1087, and

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

which for these purposes the payees were "not in an agency

relationship." Id. at 1087.

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

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,

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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

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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

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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

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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

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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

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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.

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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

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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

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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. 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.

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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

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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.

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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

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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

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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

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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-

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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

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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

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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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38

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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39

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).

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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.

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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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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

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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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