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

January 26, 2007

PSAK, GRAZIANO, PIASECKI & WHITELAW, PLAINTIFF-RESPONDENT,
v.
FLEET NATIONAL BANK AND GE CAPITAL MORTGAGE SERVICES A/K/A WELLS FARGO HOME MORTGAGE, DEFENDANTS-APPELLANTS.



On appeal from the Superior Court of New Jersey, Law Division, Special Civil Part, Somerset County, DC-4353-04.

The opinion of the court was delivered by: Parrillo, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued Telephonically November 15, 2006

Before Judges Lefelt, Parrillo and Sapp-Peterson.

Defendants Fleet National Bank (Fleet)*fn1 and GE Capital Mortgage Services (GE Capital)*fn2 appeal from a Special Civil Part judgment in favor of plaintiff law firm, Psak, Graziano, Piasecki & Whitelaw, in the amount of $6203, on the basis that plaintiff's action on a negotiable instrument was barred by the three-year statute of limitations of the Uniform Commercial Code (UCC), N.J.S.A. 12A:4-111. For reasons that follow, we reverse.

The facts are uncomplicated. In October 1998, plaintiff, acting as a settlement agent in a real estate transaction, drafted and mailed a check drawn on its attorney trust account with Fleet payable to GE Capital to pay off a mortgage in a closing. GE Capital then presented the check to its bank, NationsBank, for $6000 more than the sum for which it was drafted, apparently misreading the hand-written numerals even though the correct amount of $51,547.41 was also noted in typed text. The check was encoded in the erroneous amount and was subsequently honored by Fleet and charged to the law firm's account. On October 23, 1998, GE Capital sent the seller in the underlying real estate transaction a check in the amount of $6,676.75 as "escrow overage".

Having failed to discover the discrepancy until some four years later in 2002, despite having received a bank statement on October 30, 1998 showing the $6000 overcharge, and despite its obligation to conduct monthly reconciliations of its trust account pursuant to Rule 1:21-6(c), plaintiff filed a lawsuit in September 2004, nearly six years after the check was negotiated, to recover the $6000 overage paid by Fleet to GE Capital. In its complaint, plaintiff alleged that GE Capital, through "mistake, negligence, or inadvertence" presented the check in the incorrect amount and was unjustly enriched in the amount of $6,000, and that Fleet negligently paid the incorrect amount with "complete disregard of the type-written terms" which indicated that $51,547.74 was to be paid.

Defendants moved for summary judgment, claiming that plaintiff's action was time-barred, having been instituted outside the three-year statute of limitations of N.J.S.A. 12A:4-111. They argued that plaintiff's common-law negligence action actually arises under Article 4 of the UCC, which defines the rights of parties in matters concerning negotiable instruments, and as such is governed by the UCC's three-year statute of limitations. Plaintiff countered that the UCC does not displace its common-law tort action, for which the six-year statute of limitations of N.J.S.A. 2A:14-1 applies, but that even if the UCC's shorter term governs, the discovery rule applies and its action accrued when plaintiff discovered the error, not when the check was negotiated.

The judge denied summary judgment, finding the lawsuit was filed within six years of when the action accrued, and that even if the three-year limit applied, the discovery rule would serve to toll the statute and allow the action. A bench trial ensued at the conclusion of which the judge entered judgment for plaintiff in the amount of $6000 plus $203 in costs, and found that Fleet was entitled to indemnification from GE Capital. This appeal by both defendants follows.

Our review of a trial judge's decision as to the applicable statute of limitations is plenary and de novo. See Balsamides v. Protameen Chems, Inc., 160 N.J. 352, 372 (1999). Moreover, we do not owe deference to the trial court's determination of a strictly legal question. Manalapan Realty, L.P. v. Tp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). We are not bound by a trial judge's "construction of the legal principles." Lombardo v. Hoag, 269 N.J. Super. 36, 47 (App. Div. 1993), certif. denied, 135 N.J. 469 (1994).

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. New Jersey Lawyers' Fund for Client Protection v. Pace, 374 N.J. Super. 57 (App. Div. 2005), aff'd per curiam, 186 N.J. 123 (2006); accord Menichini v. Grant, 995 F.2d 1224, 1230 (3d Cir. 1993). As to the applicable limitations period for a cause of action on a negotiable instrument once accrued, our Supreme Court has held that "the Uniform Commercial Code . . . provides a comprehensive framework for allocating and apportioning the risk of handling checks" and that the free flow of commerce demands commercial certainty. City Check Cashing v. Manufacturers Hanover Trust, 166 N.J. 49, 57, 64 (2001). Indeed, the UCC displaces the common-law where reliance on the common law would thwart the purposes of the UCC. Sebastian v. D&S Express, Inc., 61 F. Supp. 2d 386, 391 (D. N.J. 1999) (applying Pennsylvania law, but the relevant UCC sections are identical to those enacted in New Jersey).

On this score, N.J.S.A. 12A:4-101, Official Comment 3, states that Article 4 of the UCC "defines the rights between the parties with respect to bank deposits and collections. . . . The revisions in Article 4 are intended to create a legal framework. . . for the benefit of all customers." In this regard, "the UCC is to be liberally construed and applied to promote its underlying purposes and policies, which include simplifying and clarifying the law governing commercial transactions, fostering the ...


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