Kenerson v. FDIC
Case Date: 01/05/1995
Court: United States Court of Appeals
Docket No: 94-1537
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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 -2- 2 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 -3- 3 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- -4- 4 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 -5- 5 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. -6- 6 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 . . . . -7- 7 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 -8- 8 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 -9- 9 ____________________ 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 -10- 10 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. -11- 11 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 -12- 12 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 -13- 13 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 ___ ____ -14- 14 "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 & -15- 15 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" -16- 16 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 -17- 17 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 -18- 18 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 -19- 19 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, -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 ________ _____________________ |