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New Jersey Lawyers’ Fund For Client Protection v. Pace

374 N.J. Super. 57, 863 A.2d 402 (App. Div. 2005)

BANKS; CHECKS; STATUTE OF LIMITATIONS — Conversion occurs when a bank pays on a forged endorsement and the Uniform Commercial Code’s statute of limitations runs out three years after that time.

An attorney misappropriated funds by forging client endorsements on settlement checks. The victims assigned their claims to the New Jersey Lawyers’ Fund for Client Protection which then sued the attorney and her bank, alleging that the bank was liable in conversion for accepting the forged settlement checks for deposit. The fund obtained a default judgment against the attorney, but summary judgment was granted in favor of the bank on the ground that the conversion action was barred by the Uniform Commercial Code’s (UCC’s) statute of limitation for claims of conversion of negotiable instruments. The court held that the time-of-discovery rule did not apply in determining the date of accrual of a cause of action under the UCC for conversion of a negotiable instrument.

On appeal, the fund argued that conversion of negotiable instruments should not be considered as accruing until the conversion is discovered. N.J.S.A. 12A:3-118(g) provides that an action for conversion of a negotiable instrument must be commenced within three years “after the cause of action accrues.” The fund argued that by the statute’s use of the phrase, “after the cause of action accrues,” instead of time-specific language, the Legislature intended the application of the discovery rule from the date of the discovery of the conversion. The Appellate Division disagreed, and held that conversion occurs when a bank pays on the forged endorsement and the UCC statute of limitations runs out three years after that time.


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