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Psak, Graziano, Piasecki & Whitelaw v. Fleet National Bank

390 N.J. Super. 199, 915 A.2d 42 (App. Div. 2007)

UCC; CONVERSION; NEGOTIABLE INSTRUMENTS; STATUTE OF LIMITATIONS — A conversion action with regard to negotiable instruments is governed by the three year statute of limitations under the Uniform Commercial Code.

A law firm, acting as a settlement agent in a real estate transaction, drafted and mailed a check drawn on its attorney trust account. It was to pay off a mortgage in a closing. The mortgage company presented the check to its bank for $6,000 more than the sum for which it was drafted. The check was encoded with the erroneous amount and was subsequently honored by the law firm’s bank and charged to the law firm’s account. Despite its continuing obligation to conduct monthly reconciliations of its trust account, it only discovered the discrepancy four years later. The law firm filed a suit to recover the overage nearly six years after the check was negotiated. The firm alleged the mortgage company, by its mistake, negligence, or inadvertence, presented the check with the incorrect amount and was unjustly enriched. It also alleged that the law firm’s bank was negligent in paying the incorrect amount.

Both defending parties moved for summary judgment, claiming the firm’s action was time-barred having been instituted outside the three year statute of limitations set under the Uniform Commercial Code (UCC) for matters concerning negotiable instruments. The lower court denied the motion, finding that the lawsuit was filed within a common law six year statute of limitations for tort actions, and that even if the three year period applied, the discovery rule would have served to toll the statute and allow the action. It entered judgment for the law firm. Both the mortgage company and the firm’s bank appealed.

The Appellate Division held that an action involving a negotiable instrument accrues at the time the check is negotiated; that is, the statute of limitations begins to run at the time the check amount is debited from the maker’s account. The Court also held that the UCC defines the rights between parties with respect to bank deposits and collections, and that New Jersey codified the UCC’s three year statute of limitations. It further held that the UCC displaced any common-law construct where reliance on the common law would thwart the purposes of the UCC, and in this instance the UCC provided a comprehensive remedy so as to preclude any common law negligence claim. In sum, the Court stated that, in the check collection arena, short of a special relationship between the parties created by agreement, undertaking or contact that gives rise to a duty, the sole remedies available are provided in the UCC.

Here, the Court found no special relationship between the parties involved. Therefore, the UCC’s three year statute of limitation applied to bar the law firm’s claims. The Court further found that the discovery rule argument would not apply in this type of action, as the action began to accrue at the time of conversion with regard to negotiable instruments. The Court further commented that even if the discovery rule could apply, the law firm could not benefit from it as it had failed to discover the discrepancy, despite the requirement for monthly reconciliations under court rule.


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