## Facts

- Christina Hutzler, as administratrix of an estate, settled a wrongful-death/personal-injury claim with Hertz Corporation.
- Hertz issued a settlement check payable jointly to “Christina Hutzler” and her attorney, Daniel Yudow, and mailed it to Yudow.
- Yudow endorsed the check, forged Hutzler’s endorsement, deposited it into his personal account at Manufacturers Hanover Trust Company, and disappeared without remitting any proceeds to Hutzler.
- Hutzler demanded payment from Hertz; Hertz refused, asserting its settlement obligation was satisfied by delivering the joint-payee check to her attorney.
- Hutzler sued Hertz (as settlement obligor) and Manufacturers (as the depositary bank that accepted the check with a forged co-payee endorsement).
- The trial court entered judgment for Hutzler against Hertz but reduced the award by the value of Yudow’s legal services, and granted summary judgment to Manufacturers.
- Both sides appealed, and the New York Court of Appeals reviewed Hertz’s discharge and the bank’s potential liability.

## Issues

1. Whether a settlement obligor is discharged by issuing and delivering to the payee’s attorney a check payable jointly to the payee and attorney when the attorney forges the payee’s endorsement and converts the proceeds.
2. Whether a depositary bank that accepts and pays a jointly payable check lacking a genuine endorsement of one payee may be held liable for honoring the forged endorsement.
3. Whether the payee’s recovery against the obligor may be reduced by an amount representing an attorney “fee” when the attorney obtained the funds through forgery and conversion.

## Decision

- The court held Hertz was not discharged because the jointly payable check was not validly negotiated; the forged endorsement was inoperative, so the settlement obligation remained unsatisfied.
- The court held summary judgment for Manufacturers was improper because a bank that pays a joint-payee check without all genuine endorsements may be liable for honoring a forged endorsement.
- The court rejected reducing Hutzler’s recovery by the value of Yudow’s legal services and allowed recovery of the full settlement amount from Hertz.
- The court’s disposition preserved Hertz’s ability, after paying Hutzler, to seek reimbursement from the bank based on the bank’s endorsement warranties.

## Legal Principles

- A check payable to two payees jointly requires the genuine endorsement of both payees to be negotiated; a forged endorsement passes no title and is wholly inoperative.
- Delivery of a check to an agent does not discharge the underlying obligation when the instrument is not properly negotiated and the intended payee does not receive payment due to a forged endorsement.
- An attorney’s agency to receive settlement proceeds does not include authority to forge the client’s signature or convert the client’s funds; loss is not shifted to the innocent client on that basis alone.
- A bank that accepts or pays an instrument over a forged endorsement does so at its peril and may be liable to the true payee or to the drawer who pays the payee and proceeds by subrogation/indemnity for breach of endorsement warranties.
- An obligor’s liability to the payee is not reduced by treating stolen funds as an attorney’s fee when the payee never received the proceeds.

## Conclusion

The court held that issuing and delivering a jointly payable settlement check to the payee’s attorney did not discharge the obligor where the attorney forged the payee’s endorsement and converted the proceeds; the payee could recover the full settlement amount from the obligor, and the depositary bank that honored the forged joint-payee endorsement faced potential liability, with the obligor able to pursue reimbursement after paying the payee.


Hutzler v. Hertz Corp., 347 N.E.2d 627 (N.Y. 1976)