44 F.3d 19 (1st Cir. 1995), 94-1537, Kenerson v. F.D.I.C.

Docket Nº:94-1537.
Citation:44 F.3d 19
Party Name:Jean R. KENERSON, Administratrix of the Estate of Vaughan H. Kenerson, Plaintiff-Appellant, v. FDIC, et al., Defendants-Appellees.
Case Date:January 05, 1995
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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44 F.3d 19 (1st Cir. 1995)

Jean R. KENERSON, Administratrix of the Estate of Vaughan H.

Kenerson, Plaintiff-Appellant,


FDIC, et al., Defendants-Appellees.

No. 94-1537.

United States Court of Appeals, First Circuit

January 5, 1995

Heard Sept. 16, 1994.

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[Copyrighted Material Omitted]

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Cordell A. Johnston, with whom Bradford W. Kuster and Orr and Reno, P.A., Concord, NH, were on brief, for appellant.

Irvin D. Gordon, with whom William D. Pandolph and Sulloway & Hollis, Concord, NH, were on brief, for appellee Dean Witter Reynolds Inc.

Emily Gray Rice, with whom Broderick & Dean, P.A., Manchester, NH, was on brief, for appellees Bank of California, N.A. and Morgan Guar. Trust Co.

Before TORRUELLA, Chief Judge, COFFIN, Senior Circuit Judge, and KEETON, [*] District Judge.

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.


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 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 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

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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.


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-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, 28 Cal.App.3d 731, 104 Cal.Rptr. 912, 913 (1972) (referring to "trial court's findings of fact and 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

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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 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.


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 Sec. 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....

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.


We review de novo the district court's determination that Sec. 3-603 applies, because the issue is one of law. See Salve Regina College v. Russell, 499 U.S. 225, 239, 111 S.Ct. 1217, 1225, 113 L.Ed.2d 190 (1991) (courts of appeals must review state-law...

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