The opinion of the court was delivered by: Long, J.
On certification to the Superior Court, Appellate Division, whose opinion is reported at 318 N.J. Super. 311 (1999).
In this case, we are called upon to define more precisely the standard of bad faith found in the Uniform Fiduciaries Law (UFL), N.J.S.A. 3B:14-55 to -61, in the context of an attorney's embezzlement from his clients' trust account.
During the period from mid-November 1993, to mid-February 1994, Joseph C. Caputo, a New Jersey attorney and sole practitioner, maintained two checking accounts, an attorney trust account and an attorney business account, at the National State Bank (Bank) in Summit. *fn1
Real estate constituted a substantial portion of Caputo's legal practice. His involvement with New Jersey Title Insurance Company (NJT) stemmed from several closings in which Caputo represented buyers and NJT insured title. In those transactions, Caputo received the loan funds from the buyers' mortgage-lenders and deposited them into his attorney trust account. He was expected to use those funds to pay off the sellers' mortgages. Instead, within the subject three-month period, Caputo issued 52 checks totaling $291,350, payable to himself out of his account. Caputo either cashed those checks at the Summit Avenue branch of the Bank, or had them certified at that branch and then cashed them at the Trump Taj Mahal Hotel and Casino in Atlantic City. In either event, Caputo used the proceeds of those checks for casino gambling, primarily at Trump Taj Mahal.
When NJT learned that Caputo had not satisfied the mortgage liens, it began an investigation that uncovered Caputo's embezzlement scheme. NJT paid off the outstanding mortgages, and on January 21, 1994, instituted suit against Caputo. On that date, an order was entered enjoining the Bank from disbursing any funds from Caputo's trust account. Trump Taj Mahal and the Bank were later named as defendants in the law suit. NJT's action against Trump Taj Mahal was eventually dismissed by stipulation. A default judgment was entered against Caputo, who pled guilty to criminal charges relating to the embezzlement and was disbarred by consent. Matter of Caputo, 135 N.J. 106 (1994).
The action against the Bank was based on the allegation that it had "actual knowledge that . . . Caputo's intended use of the trust funds would breach fiduciary duties," and that the Bank was negligent and acted in bad faith in violation of N.J.S.A. 3B:14-55.
The Bank denied the allegations of the complaint, contending that NJT's action was "barred under the provisions of the Uniform Fiduciaries Law, N.J.S.A. 3B:14-52 [to -65], because the Bank lacked actual knowledge of the alleged breaches of fiduciary obligation by Caputo, and lacked knowledge that its certification or payment of the checks amounted to bad faith." The Bank thereafter moved for summary judgment.
The facts adduced on the motion are not in dispute. During the three relevant months, Caputo embezzled over $291,000 in client funds. In the one month period between December 18, 1993, and January 21, 1994, Caputo drew fifty-two trust account checks payable to himself as follows: