Skip to main content



New Jersey Lawyers’ Fund for Client Protection v. Pace

186 N.J. 123, 892 a.2d 661 (2006)

CHECKS; UCC; STATUTE OF LIMITATIONS; DISCOVERY RULE—Permitting the discovery rule to be applied to negotiable instruments is inimical to the Uniform Commercial Code’s policies of finality and negotiability.

An attorney fraudulently endorsed checks made payable to her clients in settlement of their claims. The New Jersey Lawyers’ Fund for Client Protection reimbursed the clients for their losses and obtained an assignment of their rights against the attorney and the bank that accepted the forged check. The Fund then sued the bank for conversion for accepting the checks with a fraudulent endorsement. The bank claimed that the lawsuit was filed too late since it was filed more than three years after the checks were presented to the bank for payment. Under the Uniform Commercial Code, there is a three-year statute of limitations to bring a claim for conversion of a negotiable instrument (i.e., a check). The statute of limitations begins to run at the time the checks are presented for payment and paid. The Fund argued that its claim did not begin to accrue until the conversion was discovered. It claimed that since its lawsuit was filed within three years after discovering the fraudulent payment, its lawsuit was timely. Both the lower court and Appellate Division found in favor of the bank, finding that the discovery rule did not apply in this case.

On appeal, the New Jersey Supreme Court affirmed. It agreed with the Appellate Division’s approach in which it found that permitting the discovery rule to be applied to negotiable instruments is inimical to the Uniform Commercial Code’s policies of finality and negotiability. The Court noted that in other states where courts rejected the application of the discovery rule to Uniform Commercial Code cases, those courts looked to see who was in the best position to monitor the forged documents. In one of those cases, the discovery rule was not applied to toll the statute of limitations against an employer. In that case, the employer was in the best position to discover that an employee was forging checks and should have discovered it within the three year statute of limitations. The Court noted that since neither the attorney’s client nor the Fund were in the position of being able to monitor the fraud, the lower court needed to balance the equities as between the Fund and the bank. It found that the equitable considerations favored the bank and therefore the discovery rule did not apply.


MEISLIK & MEISLIK
66 Park Street • Montclair, New Jersey 07042
tel: 973-783-3000 • fax: 973-744-5757 • info@meislik.com