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Clymer v. Summit Bancorp.

171 N.J. 57, 792 A.2d 396 (2002)

ESCHEAT— The escheat period for government issued bonds in New Jersey is one year.

This appeal dealt with the Uniform Unclaimed Property Act and the period of dormancy that applies under that Act with respect to principal and interest arising from bonds issued by various governmental entities. A bank served as the trustee and paying agent in connection with numerous bonds. Payments to some bondholders went unclaimed either because “a bond [had] not been presented for redemption, an interest coupon [had] not been presented for payment, a remittance issued [had] not been negotiated, or a remittance [had] been returned as undeliverable by the post office.” Following an audit, the New Jersey Treasurer demanded that the bank turn over unclaimed funds arising out of such “unclaimed” payments pursuant to the Treasurer’s view that the applicable dormancy period under the Act for unclaimed governmental-bond funds was one year. Although the bank initially argued that the abandonment period was five years, it turned the funds over the Treasurer. In a follow up audit the next year, the Treasurer demanded additional payments, but the bank refused to make them because of its interpretation that the Act provided for a five year dormancy period. The original court ruled in favor of the Treasurer. The Appellate Division set aside that determination and agreed with the bank. Its view was that while the lower court was correct in that “there appeared to be a strong public policy favoring the result [the lower court] reached, the [Appellate Division] noted that ‘[a] court’s view of public policy cannot be used to trump the plain language of the statute itself where the clearly expressed intendment of the drafters.’” On further appeal, the New Jersey Supreme Court found that “title to the unclaimed property covered in an Act does not vest to the State, but rather remains in the owner.” Consequently, when the State takes custody of the property, the rightful owner can come forward to claim it. The Act provides for a series of abandonment periods depending on the nature of the property in a given case. There was no question that these payments constituted “intangible property.” Nonetheless, applicable abandonment provisions depended on “whether the unclaimed funds [had] been ‘held by’ the Bank or by the various governmental entities.” The Court was required, therefore, to resolve the ambiguity “within the framework of the competing abandonment periods,” which required it “to consider sources other than the literal words of the statute.” Here, for the narrow purpose of determining the applicable abandonment period, the Court viewed the accrued property as being “held by” the various governmental entities, not the Bank. In doing so, it agreed with the lower court that, “[a]lthough the Bank may have physical possession of the funds that are unclaimed, these funds represented the indebtedness of the governmental entities and were payable to the bondholders. Accordingly, the governmental entity is considered the ultimate obligor and thus a ‘holder’ as that term is defined” in the statute. The Supreme Court was comfortable that its conclusion was “consistent with the Legislature’s intent in enacting the statute, consonant with the State’s strong public policy favoring custodial escheat, and reflective of a sensible reading of the statute itself.” Further, the Court believed that its disposition gave appropriate weight to the interpretation of the administrative agency responsible for implementing the Act. The Court found that “[b]ecause the unclaimed funds [had] been generated by bonds issued by one or more public [agencies] the public itself should realize any benefit yielded by that property in the shortest time possible.”

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