On appeal from the Superior Court of New Jersey, Law Division, Morris County, MRS-L- 598-99.
Before Judges Stern, A. A. Rodríguez and Fall.
The opinion of the court was delivered by: RODRÍGUEZ, A. A., J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Generally, when a check is deposited into an account at a depository bank, it may take one or more days for the check to be processed through the banking system. When it reaches the payor bank, funds are remitted to the depository bank. In the meantime, a depository bank may provide an interim or provisional credit to its customer for the amount of the deposited check. If the payor bank refuses to honor the deposited check for any reason, the depository bank charges back or withdraws the provisional credit from its customer. The issue presented in this appeal is whether a depository bank can charge back a provisional credit, after a levy has been placed on the account. We hold that a provisional credit is not property that can be levied upon. Therefore, the depository bank can charge back against the provisional credit, despite the existence of a levy.
Intervenor, Skylands Community Bank (Skylands), appeals from an order that requires it to turn over to the Sheriff of Morris County (Sheriff) $14,236 by virtue of a levy on Medi-Peth Medical Lab, Inc. (MPM) accounts. The levy was issued by the Sheriff pursuant to a judgment obtained by DNI Nevada, Inc. (DNI) against MPM. We reverse.
The facts can be summarized as follows. DNI sued MPM and obtained a judgment by default. As part of the effort to satisfy the judgment, the Sheriff levied on MPM's accounts at Skylands. The day before the levy, MPM deposited three checks in its three Skylands accounts. These checks were issued by MPM and were drawn on accounts that MPM had at different institutions.*fn2 The next business day, MPM was given a provisional credit in its Skylands accounts to reflect these deposits. Around 10:30 A.M. that same day, the Sheriff levied upon MPM's accounts at Skylands.
After the levy and pursuant to its policy, Skylands notified MPM of the levy via fax. MPM immediately stopped payment on the checks it had deposited with Skylands. Two business days later, Skylands received the checks returned with "stop payment" notices from the payor banks. Skylands charged back the three MPM accounts. The charge back caused two of MPM's accounts at Skylands to be overdrawn, and the third to have a $591.55 balance.
A representative of Skylands notified the Sheriff's office about this situation. At the direction of the Sheriff's office, DNI's attorney called Skylands to discuss the issue. Thereafter, DNI filed a motion for turnover of the levied funds. Skylands objected. Following oral argument, the judge ordered Skylands to turn over $14,236 to DNI to discharge the levy.*fn3 The judge stayed the order pending appeal.
On appeal, Skylands contends that the judgment should be reversed because: (a) MPM's provisional credit for the checks was subject to Skylands' right to charge back; (b) the judge erred in finding that DNI's rights under the levy were greater than those of Skylands; and (c) the judge erred in ruling that Skylands must look to MPM for collection of the $14,236. We agree with these contentions and reverse.
The issue presented is purely a question of law.
Therefore, we are not required to show deference to a trial court's legal conclusions. Manalapan Realty, L.P. v. Tp. Committee of the Tp. of Manalapan, 140 N.J. 366, 378 (1995); see also Pearl Assurance Co. Ltd. v. Watts, 69 N.J. Super. 198, 205 (App. Div. 1961) (holding that appellate courts should utilize a plenary standard when its decision rests solely upon legal consequences of undisputed facts). N.J.S.A. 12A:4-201a*fn4 provides that a depository bank is only required to give a provisional credit for checks deposited that have not yet been paid. A provisional credit can be revoked at any time prior to the deposit becoming final. N.J.S.A. 12A:4-214a(5) provides that when a depository bank gives a provisional credit on an item that is later dishonored or suspended, "the [depository] bank may revoke the settlement given by it, charge back the amount of any credit given for the item to its customer's account, or obtain refund from its customer." It does not matter whether or not funds are immediately withdrawn after a provisional credit is given by the depository bank; the depository bank will not be precluded from charging back the provisional credit. N.J.S.A. 12A:4-214d(1). If, as a result, the account is overdrawn, the depository bank can seek a refund from its customer. N.J.S.A. 12A:4-214a.
In conjunction with these state statutes, banks are required to abide by federal banking laws. The Expedited Funds Availability Act, 12 U.S.C.A. § 4001 to § 4010, sets forth requirements regarding the availability of certain check deposits. Except in certain circumstances, a depository bank must make most deposited checks available on the next business day. 12 U.S.C.A. § 4002. Specifically, the statute provides that:
[N]ot more than 1 business day shall intervene between the business day on which funds are deposited in an account at a depository institution by a check drawn on a local originating depository institution and the business day ...