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State v. United States Steel Corp.

Decided: October 4, 1956.


For affirmance -- Chief Justice Vanderbilt, and Justices Oliphant, Wachenfeld, Burling and Jacobs. For reversal -- Justices Heher and Brennan. The opinion of the court was delivered by Burling, J. Heher, J. (dissenting). Brennan, J., joins in this opinion. Jacobs, J., concurring in result.


This action was instituted by the Attorney-General of the State of New Jersey, pursuant to N.J.S. 2 A:37-29 et seq., L. 1951, c. 304, generally known as the Custodial Escheat Act. The Superior Court, Chancery Division, entered a determination adverse to the defendant United States Steel Corporation and an appeal was taken to the Superior Court, Appellate Division. We certified the cause prior to a review below. R.R. 1:10-1 (a).


In State by Parsons v. Standard Oil Company, 5 N.J. 281 (1950), affirmed sub nom. Standard Oil Company v. State of New Jersey, 341 U.S. 428, 71 S. Ct. 822, 95 L. Ed. 1078 (1951), the State sought to escheat, among other assets, unpaid wages of former employees of the corporate defendant whose name or whereabouts had been unknown for 14 years or where no claim had been asserted for a similar period of time. The suit was based upon L. 1946, c. 155, as amended

L. 1947, c. 357, now incorporated as N.J.S. 2 A:37-11 to 28, inclusive, a statute providing, inter alia, for the escheat to the State of personal property of unknown owners.

Standard Oil there interposed the defense of limitations because at the time the right of the State accrued the sixyear statute of limitations, N.J.S. 2 A:14-1, had expired upon the owners' right to the wages involved. It asserted a vested right in the defense of limitations and argued that the State could obtain nothing more than the unknown owner had the latter instituted suit at the same time.

This court sustained Standard Oil's position on that issue. The court's opinion through Mr. Justice Heher demonstrated that under New Jersey law the expiration of a time limitation upon a right of action not only bars the remedy but bestows upon the debtor a vested property right immune from legislative impairment. Inasmuch as the State's right had accrued after the expiration of limitations it was concluded:

"It is a corollary of the foregoing principles that where all remedy upon the intangibles has been barred by the statute of limitations, there is no property to escheat under the act now before us. The State's right is purely derivative; it takes only the interest of the unknown or absentee owner. If the remedy has been extinguished by the statute of limitations, the State is under like incapacity. The State takes only the creditor's right; it cannot create or revive an obligation that had no existence or had become extinct." 5 N.J., at page 298.

And see State v. Western Union Telegraph Co., 17 N.J. 149, 151 (1954).

Following this court's decision in the Standard Oil case, the Legislature enacted L. 1951, c. 304, a custodial escheat law. The design of the statute, stated to be an alternative method for escheat of personal property, may be generally described as follows: The State may take into protective custody, among other things, wages held by a domestic corporation which belong to a person unknown, or whose whereabouts is unknown, or whose wages remain unclaimed, for five successive years. N.J.S. 2 A:37-30. Custody of

the funds is procured by serving a copy of a judgment on the corporation or its agent directing that the moneys be turned over to the State Treasurer. N.J.S. 2 A:37-31. The judgment is obtained through a "summary action" in the Superior Court brought by the State. N.J.S. 2 A:37-30. The corporation is required to turn over data in its possession which may assist the State Treasurer, who is charged with notifying the various owners, where possible, that their property has been transferred to State custody. N.J.S. 2 A:37-31, 32. Payment to the State Treasurer by the corporation works a complete discharge which may be asserted as a bar in any proceeding against it by the owner. N.J.S. 2 A:37-33. If no valid claim to the funds taken into custody is made within a two-year period from the date of notice to the owners the Attorney-General is directed to institute a summary action to escheat the property to the State. N.J.S. 2 A:37-36. N.J.S. 2 A:37-42 casts a duty upon "any attorney, surrogate, administrator, executor, or any other person having knowledge or information concerning any escheatable property as defined herein, to notify the Attorney-General * * * within a reasonable time, of the existence of such escheatable property."

This is the first occasion we have had to consider the operative effect of the custodial escheat legislation so far as the six-year limitation statute is concerned. Its constitutionality was upheld against an attack characterizing it as a revenue measure originating in the State Senate, State v. Thermoid Co., 16 N.J. 274 (1954) (see 1947 Constitution, Art. IV, Sec. VI, par. 1). The Superior Court, Chancery Division, upheld the statute against a general attack upon the constitutionality of the legislation, State v. American-Hawaiian S.S. Co., 29 N.J. Super. 116 (Ch. Div. 1953). In addition, the latter case (the opinion of which was made applicable to the case sub judice -- Id., 29 N.J. Super., at pages 121-122) considered the very issue presented here and determined it adversely to the corporate defendant for reasons hereinafter set forth.

That issue will now be developed.


On the effective date of the custodial escheat legislation (July 13, 1951) the defendant, a New Jersey corporation, possessed $276,641.16 in wage moneys which had remained unclaimed for more than five years and which were not yet barred by the six-year statute of limitations. Seventeen months later the State instituted a summary action for custody of these claims. In answering the order to show cause the defendant divided this aggregate of some $276,000 into three classifications:

1 -- wage claims totalling $148,680.32 upon which the six-year limitation had expired prior to filing of state's complaint;

2 -- wage claims totalling $1,215.24 upon which the six-year limitation had expired prior to the date upon which the order to show cause was served on defendant;

3 -- wage claims totalling $126,745.60 upon which the six-year limitation had not expired either on the date of filing the complaint or the date of service on defendant.

State sought and obtained judgment of custody of the entire $276,641.16 in unclaimed wages. Defendant appealed only from that portion of the judgment awarding custody to the State of categories 1 and 2 of the wage claims. It makes no issue upon the State's right to custody of wage claims in category 3.

The parties have stipulated that "but for the operation of the Custodial Escheat Act * * * the defendant would at the time the instant proceeding was commenced, or when process was served upon defendant, as the case may be, have a vested right to the defense of the statute of limitations with respect to the said $148,680.32 (and $1,215.24) of wage claims, as to the owners thereof."

The defendant, in brief, contends that the custodial statute in no way deprives it of the defense of limitations against the State which it might otherwise plead as a bar against the unknown owners. The State argues that its right of action arose prior to the running of the six-year limitation, and although the unknown owners were barred when suit

was commenced or process served on defendant, that fact interposes no obstacle to its right.

The trial court held the defense to be unavailable to defendant because on the effective date of the custodial escheat statute the six-year limitation on the wage claims in dispute had not expired, and on the same date the State acquired a right against which the statute of limitations does not operate. Its holding in this regard is more fully amplified in State v. American-Hawaiian S.S. Co., supra, 29 N.J. Super., at pages 136-139, a companion case to the instant litigation. The Standard Oil case was distinguished on the ground that there the statute of limitations had barred the claims prior to the effective date of the escheat statute (now N.J.S. 2 A:37-11 et seq.).

The questions presented are more easily stated than resolved:

1. Does a plea of the statute of limitations constitute a good defense where limitations on the wage claims have expired before institution of the summary action for custody?

2. Does the custodial escheat law cast a duty upon defendant to report property to which the State has a right of custody?

3. If questions (1) and (2) are answered in the affirmative, is defendant estopped from asserting the defense of limitations for failure to report such property to the Attorney-General?

A cross-appeal has been filed by Emerson Richards, Esquire, the attorney appointed by the Attorney-General to prosecute this action below. The cross-appeal concerns the award of counsel fees by the trial court. This issue will be disposed of following a resolution of the substantive considerations.


Question 1.

In Standard Oil, limitations had expired prior to the accrual of the State's cause of action. Here limitations have subsequently expired. We said in Standard Oil that the State's right was derivative in the sense that the sovereign could obtain nothing more than the unknown owner. If

the latter's remedy is extinguished, his right, for all practical purposes, is extinct, and there is no property subject to escheat. 5 N.J., at page 298. The derivative consequence is, in this sense, akin to proceedings in garnishment, where it is fundamental that the garnishee's liability can rise no higher than his liability to the principal debtor; if there is no property in the hands of the garnishee to which the principal debtor ...

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