On appeal from the Superior Court of New Jersey, Law Division, Special Civil Part, Passaic County, whose decision is unreported, and Law Division, Special Civil Part, Middlesex County, whose decision is reported at N.J. Super. (Law Div. 1994). These cases are consolidated for the purpose of this opinion.
Approved for Publication May 4, 1995.
Before Judges Dreier, Villanueva and Wefing. The opinion of the court was delivered by Dreier, P.j.a.d.
The opinion of the court was delivered by: Dreier
In the second of the two cases before us, First Fidelity Bank, N.A., garnishee under a levy made by plaintiff Citibank, South Dakota, N.A. on the account of defendant Lisa A. Coffey, appeals from a decision of Judge Wolfson in the Special Civil Part holding that a levying creditor's right to satisfaction of its judgment is superior to that of the garnishee bank for contractual service fees. Plaintiff obtained a default judgment against defendant in the amount of $1,707.28 because of defendant's failure to pay charges on her Citibank Visa Card. Plaintiff then levied on defendant's bank account in First Fidelity Bank, N.A. Defendant had $477.58 on deposit as of the date of the levy. The garnishee bank honored the levy for the amount of $417.58, after deducting its $60 processing fee. The sole issue in this case is whether the levying creditor or the bank has priority concerning this $60 portion of the balance on deposit.
While the amount is small, we have been informed that in the garnishee bank alone there are over 15,000 such levies per year warranting a charge of over $900,000 of which in fifty-five percent of the cases there are some funds in the account from which to deduct the $60 charge. However, the garnishee bank maintains a department with six full time employees who do nothing but process claims by levying creditors.
Judge Wolfson rejected the garnishee bank's claim to priority and directed that the bank turn over to the levying creditor the full balance on deposit before deduction for the service charge. *fn2 We here affirm Judge Wolfson's order, substantially on the basis of his opinion published at N.J. Super. (Law Div. 1994). In view of additional arguments raised on this appeal, however, we expand upon the explanations he has given.
In the first-listed matter before us, All American Auto Salvage v. Camp's Auto Wreckers, plaintiff also levied on defendant's deposit account held by the garnishee, First Fidelity Bank, N.A. The balance in the account was $940.65, and the levy was for the amount of $1,068.10. The bank again deducted its $60 fee and reported an amount of $880.65 to the court.
In that case, the trial Judge accepted the garnishee's arguments that its levying fee had priority over the rights of the levying creditor. The court found that the deposit was a general deposit and that the bank had a right of set-off to secure payment of its depositor's indebtedness. The depositor's agreement to the $60 levy fee and the bank's right to set-off this amount against the account was found to be superior to plaintiff's right as a levying creditor since plaintiff's rights could rise no higher than those of the depositor which had agreed to the prior deduction of the fee. In All American Auto Salvage v. Camp's Auto Wreckers, we reverse the order deducting the $60 charge and remand with a direction that the levy be honored in the full amount of $940.65.
In both cases the garnishee bank also asserted a security interest in the account. The garnishee bank claims, and both courts recognized, that the security interest, if any, must arise solely under the common law rather than the Uniform Commercial Code, N.J.S.A. 12A:9-101 et seq. Particularly, N.J.S.A. 12A:9-104(i) excludes application of article nine "to any right of setoff." N.J.S.A. 12A:9-104(1) excludes application to "a transfer of any interest in a deposit account," defined in N.J.S.A. 12A:9-105(1)(e) as including a demand deposit account. In these cases, the banks' claimed transfers of security interests in both accounts are, therefore, not governed by the Code.
The signature card signed by Lisa Coffey in the Citibank, South Dakota, N.A. case incorporated the personal account agreement of First Fidelity Bank, N.A. in which under the heading "service fees," the depositor acknowledged: "The Bank has a security interest in your Account for any fees you haven't paid." In the All American Auto Salvage case, defendant Camp's Auto Wreckers likewise incorporated into its deposit agreement the small business account fees which in the March 19, 1993 amendment stated: "The Bank has a security interest in any service fees or charges to the account."
In his opinion, Judge Wolfson noted that the phraseology of the security interest language in the personal account apparently referred only to past charges and excluded them on that basis. *fn3 We prefer to treat the general issue of whether the security interest allegedly created in either situation gives the bank priority over a levying judgment creditor, apart from any claim the bank may have to its right of set-off in these cases. We here determine that there is no enhanced right that the bank receives by claiming a security interest in an account over which the bank maintains no possessory interest to control withdrawals. *fn4
Where the Legislature or common law grants priority to a particular lien, the authority for such priority is clear. Examples which come to mind are the common-law attorney's lien, later confirmed in N.J.S.A. 2A:13-5, common-law and statutory landlords' and similar liens, N.J.S.A. 2A:33-1 et seq., N.J.S.A. 2A:42-1 et seq., N.J.S.A. 2A:44-165 et seq.; aircraft liens, N.J.S.A. 2A:44-1 et seq.; garage keepers liens, N.J.S.A. 2A:44-20 et seq.; the common law artisan's liens (discussed in the New Jersey Official Study Comment to N.J.S.A. 12A:9-310, paragraph 6). See generally comments to N.J.S.A. 12A:9-310. The statutory or common law liens recognized as having priorities over the established rights of others are all possessory, and all relate to services that have been performed. While the bank has technical possession of a depositor's demand deposit account, it has no right to prevent withdrawal by the depositor where there are no current charges due as of the time a levy is made. The depositor has the unfettered right to withdraw the entire amount on demand. Furthermore, the bank's processing services for which it sought to impose its "lien" were to be performed after the levy, not before.
Where the Legislature has intended to give a processor of a levy the right to charge for its efforts, it has done so by statute. See N.J.S.A. 2A:17-53, permitting a five percent deduction for an employer from the amount of a wage execution as compensation "for expense and services in payment of the execution." Without this statute, we doubt that an employer merely could write into all employment agreements that it retained a ...